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Investment Decision Making with Derivative Securities
Author(s) -
Brooks Robert
Publication year - 1989
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/j.1540-6288.1989.tb00357.x
Subject(s) - futures contract , index (typography) , derivative (finance) , portfolio , stochastic dominance , portfolio insurance , financial economics , order (exchange) , actuarial science , stock market index , stock options , business , derivatives market , economics , finance , econometrics , replicating portfolio , computer science , stock market , portfolio optimization , paleontology , horse , world wide web , biology
This paper examines strategies employing stock options, index options, index futures options, and index futures contracts in an effort to establish under what conditions a portfolio manager should diversify into these derivative assets. The results show that futures option call writing and put buying were dominated by third‐order stochastic dominance when compared to similar index options. Thus, when covered call writing or protective put buying are being considered, index options appear to be the better choice.