RT Journal Article
SR Electronic
T1 Leaping Black Swans
JF The Journal of Investing
FD Institutional Investor Journals
SP 64
OP 76
DO 10.3905/joi.2019.28.1.064
VO 28
IS 1
A1 William J. Trainor, Jr.
A1 Indudeep Chhachhi
A1 Christopher L. Brown
YR 2019
UL https://pm-research.com/content/28/1/64.abstract
AB This article examines an option based portfolio insurance strategy where a fixed percentage of the portfolio is used to purchase in the money long-term call options with the remainder invested in a standard investment grade bond fund. Our results show a 90/10 portfolio, where 10% is invested in long term call options, has returns commensurate with the S&P 5000 while mitigating losses. These call option based portfolios don’t require rebalancing during the term of coverage and are flexible enough to suit investors with very different risk tolerances and portfolio sizes. As constructed, these portfolios outperform put option based portfolio insurance strategies and perform as well as a CPPI, with the added advantage of not needing to be actively managed.TOPICS: Portfolio theory, portfolio construction