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Optimal Design of Multi-Asset Options

Author

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  • Alejandro Balbás

    (Department of Business Administration, University Carlos III of Madrid, C/Madrid, 126, 28903 Getafe, Madrid, Spain)

  • Beatriz Balbás

    (Department of Economics and Business Administration, University of Alcalá, Pl. de la Victoria, 2, 28802 Alcalá de Henares, Madrid, Spain)

  • Raquel Balbás

    (Department of Financial and Actuarial Economics and Statistics, University Complutense of Madrid, 28223 Pozuelo de Alarcón, Madrid, Spain)

Abstract

The combination of stochastic derivative pricing models and downside risk measures often leads to the paradox (risk, return) = (−infinity, +infinity) in a portfolio choice problem. The construction of a portfolio of derivatives with high expected returns and very negative downside risk (henceforth “golden strategy”) has only been studied if all the involved derivatives have the same underlying asset. This paper also considers multi-asset derivatives, gives practical methods to build multi-asset golden strategies for both the expected shortfall and the expectile risk measure, and shows that the use of multi-asset options makes the performance of the obtained golden strategy more efficient. Practical rules are given under the Black–Scholes–Merton multi-dimensional pricing model.

Suggested Citation

  • Alejandro Balbás & Beatriz Balbás & Raquel Balbás, 2025. "Optimal Design of Multi-Asset Options," Risks, MDPI, vol. 13(1), pages 1-20, January.
    • Handle: RePEc:gam:jrisks:v:13:y:2025:i:1:p:16-:d:1568739
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    References listed on IDEAS

    as
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