Synthetic Options, Portfolio Insurance, and Contingent Immunization

Cheng Few Lee

Chapter 89 in Handbook of Financial Econometrics, Mathematics, Statistics, and Machine Learning:(In 4 Volumes), 2020, pp 3099-3141 from World Scientific Publishing Co. Pte. Ltd.

Abstract: This chapter discusses how futures, options, and futures options can be used in portfolio insurance (dynamic hedging). Four alternative portfolio insurance strategies are discussed in this chapter. These strategies are: (i) stop-loss orders, (ii) portfolio insurance with listed put options, (iii) portfolio insurance with synthetic options, and (iv) portfolio insurance with dynamic hedging. In addition, the techniques of combining stocks and futures to derive synthetic options are explored in detail. Finally, important literature related to portfolio insurance is also reviewed.

Keywords: Financial Econometrics; Financial Mathematics; Financial Statistics; Financial Technology; Machine Learning; Covariance Regression; Cluster Effect; Option Bound; Dynamic Capital Budgeting; Big Data (search for similar items in EconPapers)
JEL-codes: C01 C1 G32 (search for similar items in EconPapers)
Date: 2020
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