In this article, we elaborate a method for determining the optimal strike price for a put option, used to hedge a position in a financial product such as a basket of shares and a bond. This strike price is optimal in the sense that it minimizes, for a given budget, a class of risk measures satisfying certain properties. Formulas are derived for one single underlying as well as for a weighted sum of underlyings. For the latter we will consider two cases depending on the dependence structure of the components in this weighted sum. Applications and numerical results are presented. © The Journal of Risk and Insurance, 2010.
CITATION STYLE
Deelstra, G., Vanmaele, M., & Vyncke, D. (2010). Minimizing the risk of a financial product using a put option. Journal of Risk and Insurance, 77(4), 767–800. https://doi.org/10.1111/j.1539-6975.2010.01365.x
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