Economics at your fingertips  

Risk minimisation using options and risky assets

Mohd Azdi Maasar (), Diana Roman () and Paresh Date ()
Additional contact information
Mohd Azdi Maasar: Universiti Teknologi MARA Malaysia
Diana Roman: Brunel University London
Paresh Date: Brunel University London

Operational Research, 2022, vol. 22, issue 1, No 17, 485-506

Abstract: Abstract We consider mean-risk portfolio optimisation models, with risk measured by symmetric measures (variance) as well as downside or tail measures (lower partial moments, conditional value at risk). A framework for including index options in the universe of assets, in addition to stocks, is provided. The exercise of index options is settled in cash, making this implementable with a variety of strike prices and maturities. We use a dataset with stocks from FTSE 100 and index options on FTSE100. Numerical results show that, for low risk-low return and to medium risk-medium return portfolios, the addition of an index put further reduces the risk to a considerable extent, particularly in the case of mean-CVaR efficient portfolios, where the left tail of the portfolio return distribution is dramatically improved. For high risk-high return portfolios, the inclusion of an index call improves the right tail of the return distribution, creating thus the opportunity for considerably higher returns.

Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link) Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Ordering information: This journal article can be ordered from
https://www.springer ... search/journal/12351

DOI: 10.1007/s12351-020-00559-5

Access Statistics for this article

Operational Research is currently edited by Nikolaos F. Matsatsinis, John Psarras and Constantin Zopounidis

More articles in Operational Research from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().

Page updated 2022-05-12
Handle: RePEc:spr:operea:v:22:y:2022:i:1:d:10.1007_s12351-020-00559-5