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Long‐Term Synthetic Puts
Author(s) -
Hussain Riaz
Publication year - 1993
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.1540-6288.1993.tb01336.x
Subject(s) - portfolio , stock (firearms) , benchmark (surveying) , bond , financial economics , stock price , term (time) , common stock , economics , business , finance , engineering , mechanical engineering , paleontology , physics , geodesy , quantum mechanics , series (stratigraphy) , biology , geography , context (archaeology)
We present the possibility of replicating the performance of a long‐term put, which is not available in the financial markets, by a set of other traded financial assets. First, a benchmark portfolio is formed out of one share of stock and one put on the stock with a certain exercise price and a long time until maturity. The general form of a portfolio, consisting of shares of stock, bonds, and options on the stock, is discussed, which is expected to perform like the benchmark portfolio. Then a class of these synthetic puts is examined to determine which type of synthetic put may dominate the others.