Abstract
Some studies show that the performance of option strategies with stock portfolios could depend on other factors or on market conditions. Benninga and Blume (1985) analyzed the optimality of portfolio insurance in complete and incomplete markets, and found that buying put option may be optimal only in an incomplete market, not in a complete market. Brooks and Hand (1988) examined the return characteristics of index futures contracts, and found that both the return distribution and performance evaluation depend on the risk-free rate, the dividend rate, the basis and the margins. In the present study, we have computed implied volatility using a number of models and statistically compared each of them with the historical one. We propose to advocate a portfolio strategy based on such mispricing of options contracts.
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