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Investment Decision Making with Derivative Securities

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  • Brooks, Robert

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 are 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. Copyright 1989 by MIT Press.

Suggested Citation

  • Brooks, Robert, 1989. "Investment Decision Making with Derivative Securities," The Financial Review, Eastern Finance Association, vol. 24(4), pages 511-527, November.
    • Handle: RePEc:bla:finrev:v:24:y:1989:i:4:p:511-27
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    Cited by:

    1. Lam, Kin & Lean, Hooi Hooi & Wong, Wing-Keung, 2016. "Stochastic Dominance and Investors’ Behavior towards Risk: The Hong Kong Stocks and Futures Markets," MPRA Paper 74386, University Library of Munich, Germany.
    2. Bhargava, Vivek & Brooks, Robert, 2002. "Exploration of the role of expectations in foreign exchange risk management," Journal of Multinational Financial Management, Elsevier, vol. 12(2), pages 171-189, April.

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