IDEAS home Printed from https://ideas.repec.org/a/inm/ormnsc/v29y1983i4p419-429.html
   My bibliography  Save this article

An Algorithm to Calculate the Return Distribution of Portfolios with Option Positions

Author

Listed:
  • Richard Bookstaber

    (Brigham Young University)

  • Roger Clarke

    (Brigham Young University)

Abstract

The use of options in altering the return distribution of stock portfolios has found increasing interest among investment managers. The potential of options in forming portfolio return distributions that are more consistent with investor preferences has been well developed, but determining the actual effect of options on portfolio returns remains a complex and unsolved problem. The purpose of this paper is to describe an algorithm for determining the return distribution that will result when option positions are taken on stocks in a portfolio. The distribution is determined for a finite time horizon, and does not rely on the assumption of continuous portfolio revisions. Simulation tests on the algorithm are also discussed. The algorithm is then used to illustrate the effect that several simple and well-known options strategies will have on portfolio return characteristics. This algorithm will be of practical value, giving a technique for generating and analyzing the expanded opportunity set that exists by using options in portfolio management.

Suggested Citation

  • Richard Bookstaber & Roger Clarke, 1983. "An Algorithm to Calculate the Return Distribution of Portfolios with Option Positions," Management Science, INFORMS, vol. 29(4), pages 419-429, April.
    • Handle: RePEc:inm:ormnsc:v:29:y:1983:i:4:p:419-429
    DOI: 10.1287/mnsc.29.4.419
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/mnsc.29.4.419
    Download Restriction: no
    File URL: https://libkey.io/10.1287/mnsc.29.4.419?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Cumova, Denisa & Nawrocki, David, 2014. "Portfolio optimization in an upside potential and downside risk framework," Journal of Economics and Business, Elsevier, vol. 71(C), pages 68-89.
    2. Scheuenstuhl, Gerhard & Zagst, Rudi, 2008. "Integrated portfolio management with options," European Journal of Operational Research, Elsevier, vol. 185(3), pages 1477-1500, March.
    3. Lim, Terence & Lo, Andrew W. & Merton, Robert C. & Scholes, Myron S., 2006. "The Derivatives Sourcebook," Foundations and Trends(R) in Finance, now publishers, vol. 1(5–6), pages 365-572, April.

    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:inm:ormnsc:v:29:y:1983:i:4:p:419-429. 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: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.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.