Investment Decision Making with Derivative Securities |
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| Authors: | Robert Brooks |
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| Institution: | University of Alabama, Tuscaloosa, AL 35487–0224. This work was conducted while at Auburn University, AL. The author gratefully acknowledges financial support by the Chicago Board of Trade Educational Research Foundation for this research. |
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| Abstract: | 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. |
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