Long-Term Synthetic Puts

Riaz Hussain

The Financial Review, 1993, vol. 28, issue 1, 25-44

Abstract: We present the possibility of replicating the performance of a long-term put, which is not available in the financial markets, by a set of other traded financial assets. First, a benchmark portfolio is formed out of one share of stock and one put on the stock with a certain exercise price and a long time until maturity. The general form of a portfolio, consisting of shares of stock, bonds, and options on the stock, is discussed, which is expected to perform like the benchmark portfolio. Then a class of these synthetic puts is examined to determine which type of synthetic put may dominate the others. Copyright 1993 by MIT Press.

Date: 1993
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