An Optimal Timing Approach to Option Portfolio Risk Management

Tim Leung and Peng Liu

Chapter 17 in Advances in Financial Risk Management, 2013, pp 391-404 from Palgrave Macmillan

Abstract: Abstract Options are widely used as a tool for investment and risk management. In a liquid market, investors have the flexibility to trade options prior to their expiration dates. This is especially important for investors with an existing option position as they can control risk exposure through timing the option trades. For effective option based portfolio management, it is imperative for any investor to determine when to liquidate an option to the market at its trading price. Prior to expiration, the investor can always sell the option immediately, or wait for a potentially better future opportunity. This chapter studies the optimal timing to liquidate an option position to the market.

Keywords: Variational Inequality; Stock Price; Stochastic Volatility; Strike Price; Stochastic Volatility Model (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-1-137-02509-8_17

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DOI: 10.1057/9781137025098_17

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