Abstract
The investment performance of an option-based portfolio insurance strategy is compared with a buy-and-hold strategy under the Black and Scholes framework. Under this setup, we can derive the return distributions for the portfolio insurance and buy-and-hold strategies. According to the economic performance measure, which generalizes the Sharpe measure, the portfolio insurance with no transaction costs almost outperforms buy-and-hold in all scenarios studied. Further, if the percent of principal protected is chosen optimally, the portfolio insurance is better than buy-and-hold. Although the portfolio insurance loses some ground for short investment horizons with transaction costs, the portfolio insurance performs relatively well for long investment horizons.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.