Synthetic Options, Portfolio Insurance, and Contingent Immunization

Cheng Few Lee

Chapter 95 in Handbook of Investment Analysis, Portfolio Management, and Financial Derivatives:In 4 Volumes, 2024, pp 3159-3202 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 as follows: (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 Accounting; Financial Auditing; Mutual Funds; Hedge Funds; Asset Pricing; Options; Portfolio Analysis; Risk Management; Investment Analysis; Momentum Analysis; Behavior Analysis; Futures; Index Futures; CDCs; Financial Econometrics; Statistics; Financial Derivatives; Financial Accounting (search for similar items in EconPapers)
JEL-codes: G1 G11 G12 G3 M41 M42 (search for similar items in EconPapers)
Date: 2024
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