Stop-loss strategies and derivatives portfolios
Patrick Leoni ()
International Journal of Business Forecasting and Marketing Intelligence, 2008, vol. 1, issue 1, pages 82-93
We carry out a Monte-Carlo simulation of the long-term behaviour of a standard derivatives portfolio to analyse the performance of stop-loss strategies in terms of loss reductions. We observe that the more correlated the underlyings, the earlier the stop-loss activation for every acceptable level of losses. Switching from 0-correlation across underlyings to a very mild form of correlation significantly decreases the expected time of activation, and it significantly increases the probability of activating the stop-loss. Adding more correlation does not significantly change those features. We introduce the notion of laissez-faire strategies, and we show that those strategies always lead to lower average losses than stop-losses.
Keywords: derivatives; stop-loss strategies; Monte-Carlo simulation; loss reduction; laissez-faire. (search for similar items in EconPapers)
References: Add references at CitEc
Citations Track citations by RSS feed
Downloads: (external link)
Access to full text is restricted to subscribers.
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: http://EconPapers.repec.org/RePEc:ids:ijbfmi:v:1:y:2008:i:1:p:82-93
Access Statistics for this article
More articles in International Journal of Business Forecasting and Marketing Intelligence from Inderscience Enterprises Ltd
Series data maintained by Graham Langley ().