Optimal Design of Multi-Asset Options
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 “...
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| Format: | Article |
| Language: | English |
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MDPI AG
2025-01-01
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| Series: | Risks |
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| Online Access: | https://www.mdpi.com/2227-9091/13/1/16 |
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| author | Alejandro Balbás Beatriz Balbás Raquel Balbás |
| author_facet | Alejandro Balbás Beatriz Balbás Raquel Balbás |
| author_sort | Alejandro Balbás |
| collection | DOAJ |
| description | 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. |
| format | Article |
| id | doaj-art-fa3cdde487bb4836a2b7ceca74b5ad82 |
| institution | Kabale University |
| issn | 2227-9091 |
| language | English |
| publishDate | 2025-01-01 |
| publisher | MDPI AG |
| record_format | Article |
| series | Risks |
| spelling | doaj-art-fa3cdde487bb4836a2b7ceca74b5ad822025-01-24T13:48:21ZengMDPI AGRisks2227-90912025-01-011311610.3390/risks13010016Optimal Design of Multi-Asset OptionsAlejandro Balbás0Beatriz Balbás1Raquel Balbás2Department of Business Administration, University Carlos III of Madrid, C/Madrid, 126, 28903 Getafe, Madrid, SpainDepartment of Economics and Business Administration, University of Alcalá, Pl. de la Victoria, 2, 28802 Alcalá de Henares, Madrid, SpainDepartment of Financial and Actuarial Economics and Statistics, University Complutense of Madrid, 28223 Pozuelo de Alarcón, Madrid, SpainThe 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.https://www.mdpi.com/2227-9091/13/1/16multi-asset derivativedownside risk measureunbounded market price of riskgolden strategy |
| spellingShingle | Alejandro Balbás Beatriz Balbás Raquel Balbás Optimal Design of Multi-Asset Options Risks multi-asset derivative downside risk measure unbounded market price of risk golden strategy |
| title | Optimal Design of Multi-Asset Options |
| title_full | Optimal Design of Multi-Asset Options |
| title_fullStr | Optimal Design of Multi-Asset Options |
| title_full_unstemmed | Optimal Design of Multi-Asset Options |
| title_short | Optimal Design of Multi-Asset Options |
| title_sort | optimal design of multi asset options |
| topic | multi-asset derivative downside risk measure unbounded market price of risk golden strategy |
| url | https://www.mdpi.com/2227-9091/13/1/16 |
| work_keys_str_mv | AT alejandrobalbas optimaldesignofmultiassetoptions AT beatrizbalbas optimaldesignofmultiassetoptions AT raquelbalbas optimaldesignofmultiassetoptions |