Options and structured products in behavioral portfolios
AbstractOptions and structured products have no roles in mean–variance portfolios, but they have roles in behavioral portfolios. Behavioral portfolios are composed of mental account sub-portfolios, each associated with a goal, such as retirement income or bequest. Investors optimize each mental account by finding the assets and asset allocation that maximizes the expected return of each mental account sub-portfolio subject to the condition that the probability of failing to reach a preset threshold aspiration level not exceed a preset probability. Put options are useful in ‘downside protection’ mental accounts whose goal is avoiding poverty, whereas call options are useful in ‘upside potential’ mental accounts whose goal is a shot at riches. We also explore the roles in behavioral portfolios of option collars, capital guaranteed notes, and barrier range notes.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Economic Dynamics and Control.
Volume (Year): 37 (2013)
Issue (Month): 1 ()
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Web page: http://www.elsevier.com/locate/jedc
Behavioral portfolios; Options; Structured products;
Find related papers by JEL classification:
- G2 - Financial Economics - - Financial Institutions and Services
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
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