Publicação
The cost of hedging against downside market risk
| Resumo: | What part of the upside would an investor have to give up to obtain some form of continuous loss protection? In other words, what is the implicit cost of setting up a systematic option-based protective strategy on an equity position? The acquisition of a 15% out-of-the-money put can be financed by selling a call at the same price. Our results suggest that such a strategy on an index can be costly and not necessarily convenient: hedging all drops bigger than 15% on the S&P 500 index starting from 2012 would have required to cap profits at 5.49%, on average. |
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| Autores principais: | Puma, Stefano |
| Outros Autores: | Veneroni, Alessandro |
| Assunto: | Portfolio insurance Costless collar Self-financing Put protection |
| Ano: | 2019 |
| País: | Portugal |
| Tipo de documento: | dissertação de mestrado |
| Tipo de acesso: | acesso aberto |
| Instituição associada: | Universidade Nova de Lisboa |
| Idioma: | inglês |
| Origem: | Repositório Institucional da UNL |
| Resumo: | What part of the upside would an investor have to give up to obtain some form of continuous loss protection? In other words, what is the implicit cost of setting up a systematic option-based protective strategy on an equity position? The acquisition of a 15% out-of-the-money put can be financed by selling a call at the same price. Our results suggest that such a strategy on an index can be costly and not necessarily convenient: hedging all drops bigger than 15% on the S&P 500 index starting from 2012 would have required to cap profits at 5.49%, on average. |
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