IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/89360.html
   My bibliography  Save this paper

Funding Options from the Market

Author

Listed:
  • Bell, Peter

Abstract

Investors face many different versions of The Portfolio Problem. Consider, for example, holding shares and call options on a publicly-traded equity. The options are in-the-money and live. How best should the investor go about exercising those options? They could fund from capital or use the secondary market to fund the options, as follows. When market price is above strike price, it may be possible to sell shares into market in advance of exercising the call options. This operation can yield residual cash or shares. How much should an investor do this and when? This paper presents a specific numerical example where we trade out of options when the market price breaches a 2:1 ratio to strike price and provides descriptive statistics for investors’ wealth in simulation with standard Gaussian motion for share price and specific trading rule.

Suggested Citation

  • Bell, Peter, 2018. "Funding Options from the Market," MPRA Paper 89360, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:89360
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/89360/1/MPRA_paper_89360.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    Finance; Trading; Derivatives;
    All these keywords.

    JEL classification:

    • C00 - Mathematical and Quantitative Methods - - General - - - General
    • G00 - Financial Economics - - General - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:89360. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.