Using Option Pricing Information to Time Diversify Portfolio Returns

Myron Scholes

Chapter 1 in Options — 45 Years since the Publication of the Black–Scholes–Merton Model:The Gershon Fintech Center Conference, 2023, pp 1-15 from World Scientific Publishing Co. Pte. Ltd.

Abstract: The following sections are included:Average Returns are the Main FocusCompound Return Facts: Tail Risks Dominate!Compound Returns a Function of RiskBig Problem: Tail Events More Frequent than Normal DistributionThink Tails of the Distribution: Concentrate on Normal EventsRelative Performance EvaluationInvestment Strategies — Asset Allocation Static Constraints are CostlyFactors that Affect Terminal WealthMeasuring Tail Risk Using Market PricesTail Gains/Losses from Opiton PricesEnhancing Compound Returns Through Dynamic Risk Management (1996—2015)Using Option Prices to Forecast Risk Changing Risk ProactivelyUsing Option Prices to Measure RiskUncertainty of the Distribution of ReturnsAdaptive Strategy — Pre and Post “2008” CrisisIssues

Keywords: Options; Call; Put; Stock; Equity; Bond; Debt; Dividend; Investment; Diversification; Volatility; Black–Scholes; Merton Model; Stochastic; Swap; Commodity; Index; Contingent Claims; Exotic Option (search for similar items in EconPapers)
JEL-codes: C C02 G1 G11 G12 G15 (search for similar items in EconPapers)
Date: 2023
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