Risk Management with Stock Index Futures and Put Options

Robert Harlow ()
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Robert Harlow: Associate Head of Global Multi-Asset Research at T. Rowe Price

Chapter Chapter 12 in Derivatives Applications in Asset Management, 2025, pp 221-228 from Springer

Abstract: Abstract The case presented in this chapter explores risk management in equity portfolios by examining hedging strategies with stock index futures and put options. It discusses the practicalities of implementing these two approaches to reduce the directional beta exposure to the S&P 500 index, emphasizing the trade-offs between futures-based and options-based hedging. Using a hypothetical portfolio, the case compares outcomes during the COVID-19 market sell-off, illustrating the effectiveness of each strategy under extreme conditions. The options approach demonstrated higher gains due to unexpectedly high realized market volatility. Still, it also highlighted the accounted-for higher upfront costs and the potential impact of the volatility risk premium.

Keywords: Beta Exposure; Hedging Strategies; Market Volatility; Put Options; Stock Index Futures (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-031-86354-7_12

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DOI: 10.1007/978-3-031-86354-7_12

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