Investment Decision Making with Derivative Securities

Robert Brooks ()

The Financial Review, 1989, vol. 24, issue 4, 511-27

Abstract: This paper examines strategies employing stock options, index options, index futures options, and index futures contracts in an effort to establish under what conditions a portfolio manager should diversify into these derivative assets. The results show that futures option call writing and put buying are dominated by third-order stochastic dominance when compared to similar index options. Thus, when covered call writing or protective put buying are being considered, index options appear to be the better choice. Copyright 1989 by MIT Press.

Date: 1989
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