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Abstract

Consider an agent who holds a stock, but is allowed to buy and hold some quantity of at-the-money put options on the stock.
Such an agent must decide the optimal use of financial derivatives under trade restrictions.
This paper uses simulation to compare the optimal quantity when the agent maximizes mean-variance utility or Value at Risk over wealth at option expiry.
The optimal quantity is larger than the stock holding under mean-variance utility and precisely the same under value at risk.
The options do not remove all variation in returns but still benefit the agent.



Item Type: MPRA Paper -

Original Title: On the optimal use of put options under trade restrictions-

Language: English-

Keywords: Portfolio optimization; put option; trade restrictions; simulation.-

Subjects: C - Mathematical and Quantitative Methods > C0 - General > C00 - GeneralC - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C15 - Statistical Simulation Methods: GeneralC - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C63 - Computational Techniques ; Simulation ModelingG - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice ; Investment DecisionsG - Financial Economics > G2 - Financial Institutions and Services > G22 - Insurance ; Insurance Companies ; Actuarial Studies-





Autor: Bell, Peter N

Fuente: https://mpra.ub.uni-muenchen.de/62155/



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