Asset allocation using option-implied moments
This study uses an option-implied distribution as the input in asset allocation. The computation of risk-neutral densities (RND) are based on the Dow Jones Industrial Average (DJIA) index option and its constituents. Since the RNDs estimation does not incorporate risk premium, the conversion of RND...
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| Main Authors: | , , |
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| Format: | Conference or Workshop Item |
| Language: | English English |
| Published: |
Institute of Physics Publishing
2017
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| Subjects: | |
| Online Access: | http://irep.iium.edu.my/57990/17/57990_Asset%20allocation.pdf http://irep.iium.edu.my/57990/23/57990_Asset%20allocation_SCOPUS.pdf http://irep.iium.edu.my/57990/ http://iopscience.iop.org/article/10.1088/1742-6596/890/1/012158/pdf |
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| Institution: | Universiti Islam Antarabangsa Malaysia |
| Language: | English English |
| Summary: | This study uses an option-implied distribution as the input in asset allocation. The computation of risk-neutral densities (RND) are based on the Dow Jones Industrial Average (DJIA) index option and its constituents. Since the RNDs estimation does not incorporate risk premium, the conversion of RND into risk-world density (RWD) is required. The RWD is obtained through parametric calibration using the beta distributions. The mean, volatility, and covariance are then calculated to construct the portfolio. The performance of the portfolio is evaluated by using portfolio volatility and Sharpe ratio. |
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