Options on portfolios with higher-order moments |
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Authors: | Rishabh Bhandari Sanjiv R. Das |
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Affiliation: | aIndian School of Business, Gachibowli, Hyderabad 500032, India;bSanta Clara University, Finance (Leavey School of Business), 500 El Camino Real, Santa Clara, CA 95053, USA |
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Abstract: | We develop a simple calibration approach to generate return distributions for multivariate asset distributions and use this technique to price options on portfolios given the first four co-moments of the joint distribution of returns. The technique is fast and captures the impact of covariance, and the co-skewness and co-kurtosis tensors on the value of these options. Given the technique works for a portfolio, the same is also applicable to options on individual securities as a special simpler case. |
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Keywords: | Co-moments Tensors Options Portfolios |
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