Options on portfolios with higher-order moments

We develop a simple calibration approach to generate return distributions for multivariate asset distributions and use this technique to price options on portfolios given the first four co-moments of the joint distribution of returns. The technique is fast and captures the impact of covariance, and...

Full description

Saved in:
Bibliographic Details
Published in:Finance research letters 2009-09, Vol.6 (3), p.122-129
Main Authors: Bhandari, Rishabh, Das, Sanjiv R.
Format: Article
Language:English
Subjects:
Co-moments
Co-moments Tensors Options Portfolios
Options
Portfolios
Tensors
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:We develop a simple calibration approach to generate return distributions for multivariate asset distributions and use this technique to price options on portfolios given the first four co-moments of the joint distribution of returns. The technique is fast and captures the impact of covariance, and the co-skewness and co-kurtosis tensors on the value of these options. Given the technique works for a portfolio, the same is also applicable to options on individual securities as a special simpler case.
ISSN:1544-6123
1544-6131
DOI:10.1016/j.frl.2009.04.002