Optimal portfolio allocation using option implied information
Optimal portfolio allocation using option implied information
This paper explores option-implied information measures for optimal portfolio allocation. We introduce two state variables constructed from option prices. The first state variable is the risk-premium on the risky asset and the second variable is the market price of risk. We also explore a lognormal distribution, a mixture of lognormal distributions, and a binomial tree for constructing the implied risk-neutral density function. Using a combination of statistical and economic measures applied to a portfolio given by the 1-month US Treasury bill and the S&P 500 Index we show the good performance of option-implied information measures for optimal portfolio allocation.
strategic asset allocation, option implied information, risk-neutral density function, ARCH models, performance evaluation
1-20
Kyriacou, Maria
6234587e-81f1-4e1d-941d-395996f8bda7
Olmo, Jose
706f68c8-f991-4959-8245-6657a591056e
Strittmatter, Marius
036254b5-0ec6-4c14-ada2-e53fa5971091
Kyriacou, Maria
6234587e-81f1-4e1d-941d-395996f8bda7
Olmo, Jose
706f68c8-f991-4959-8245-6657a591056e
Strittmatter, Marius
036254b5-0ec6-4c14-ada2-e53fa5971091
Kyriacou, Maria, Olmo, Jose and Strittmatter, Marius
(2020)
Optimal portfolio allocation using option implied information.
Journal of Futures Markets, .
(doi:10.1002/fut.22177).
Abstract
This paper explores option-implied information measures for optimal portfolio allocation. We introduce two state variables constructed from option prices. The first state variable is the risk-premium on the risky asset and the second variable is the market price of risk. We also explore a lognormal distribution, a mixture of lognormal distributions, and a binomial tree for constructing the implied risk-neutral density function. Using a combination of statistical and economic measures applied to a portfolio given by the 1-month US Treasury bill and the S&P 500 Index we show the good performance of option-implied information measures for optimal portfolio allocation.
Text
Kyriacou Olmo Strittmatter JFM final
- Accepted Manuscript
More information
Accepted/In Press date: 29 October 2020
e-pub ahead of print date: 1 December 2020
Additional Information:
Publisher Copyright:
© 2020 Wiley Periodicals LLC
Keywords:
strategic asset allocation, option implied information, risk-neutral density function, ARCH models, performance evaluation
Identifiers
Local EPrints ID: 444708
URI: http://eprints.soton.ac.uk/id/eprint/444708
ISSN: 0270-7314
PURE UUID: 8b9a5b22-745b-45a0-a4a6-4d87b2cadae4
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Date deposited: 30 Oct 2020 17:31
Last modified: 17 Mar 2024 06:03
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Author:
Marius Strittmatter
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