The role of an option-implied distribution in improving as asset allocation model

The role of an option-implied distribution in improving as asset allocation model

The objective of this paper is to extend the information embedded in option-implied distribution to asset allocation model. This paper examines whether a parameter estimated from an option-implied distribution can improve a minimum-variance portfolio which consists of many risky assets. The option-i...

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Main Authors: Bahaludin, Hafizah, Abdullah, Mimi Hafizah
Format: Article
Language:English
Published: UTM Press 2020
Subjects:
QA Mathematics
QA276 Mathematical Statistics
Online Access:http://irep.iium.edu.my/78720/
http://irep.iium.edu.my/78720/
http://irep.iium.edu.my/78720/
http://irep.iium.edu.my/78720/1/01_2018%20The%20role%20of%20an%20option-implied%20distribution%20in%20improving%20an%20asset%20allocation%20model.pdf
id iium-78720
recordtype eprints
spelling iium-787202020-03-12T08:32:24Z http://irep.iium.edu.my/78720/ The role of an option-implied distribution in improving as asset allocation model Bahaludin, Hafizah Abdullah, Mimi Hafizah QA Mathematics QA276 Mathematical Statistics The objective of this paper is to extend the information embedded in option-implied distribution to asset allocation model. This paper examines whether a parameter estimated from an option-implied distribution can improve a minimum-variance portfolio which consists of many risky assets. The option-implied distribution under a risk-neutral assumption is called risk-neutral density (RND) whereas a risk-world density (RWD) is calculated by incorporating a risk-premium. The computation of option-implied distributions is based on the Dow Jones Industrial Average (DJIA) index options and its constituents. The data covers the period from January 2009 until December 2015. Portfolio performance is evaluated based on portfolio volatility and Sharpe ratio. The performance of a portfolio based on an option-implied distribution is compared to a naive diversification portfolio. The empirical evidence shows that for a portfolio based on an option-implied distribution, the volatility of the portfolio is reduced and the Sharpe ratio is increased. UTM Press 2020-01 Article PeerReviewed application/pdf en http://irep.iium.edu.my/78720/1/01_2018%20The%20role%20of%20an%20option-implied%20distribution%20in%20improving%20an%20asset%20allocation%20model.pdf Bahaludin, Hafizah and Abdullah, Mimi Hafizah (2020) The role of an option-implied distribution in improving as asset allocation model. Malaysian Journal of Fundamental and Applied Sciences, 16 (1 (Jan-Feb)). pp. 64-69. ISSN 2289-5981 E-ISSN 2289-599X https://mjfas.utm.my/index.php/mjfas/article/view/1368/pdf 10.11113/mjfas.v16n1.1368
repository_type Digital Repository
institution_category Local University
institution International Islamic University Malaysia
building IIUM Repository
collection Online Access
language English
topic QA Mathematics
QA276 Mathematical Statistics
spellingShingle QA Mathematics
QA276 Mathematical Statistics
Bahaludin, Hafizah
Abdullah, Mimi Hafizah
The role of an option-implied distribution in improving as asset allocation model
description The objective of this paper is to extend the information embedded in option-implied distribution to asset allocation model. This paper examines whether a parameter estimated from an option-implied distribution can improve a minimum-variance portfolio which consists of many risky assets. The option-implied distribution under a risk-neutral assumption is called risk-neutral density (RND) whereas a risk-world density (RWD) is calculated by incorporating a risk-premium. The computation of option-implied distributions is based on the Dow Jones Industrial Average (DJIA) index options and its constituents. The data covers the period from January 2009 until December 2015. Portfolio performance is evaluated based on portfolio volatility and Sharpe ratio. The performance of a portfolio based on an option-implied distribution is compared to a naive diversification portfolio. The empirical evidence shows that for a portfolio based on an option-implied distribution, the volatility of the portfolio is reduced and the Sharpe ratio is increased.
format Article
author Bahaludin, Hafizah
Abdullah, Mimi Hafizah
author_facet Bahaludin, Hafizah
Abdullah, Mimi Hafizah
author_sort Bahaludin, Hafizah
title The role of an option-implied distribution in improving as asset allocation model
title_short The role of an option-implied distribution in improving as asset allocation model
title_full The role of an option-implied distribution in improving as asset allocation model
title_fullStr The role of an option-implied distribution in improving as asset allocation model
title_full_unstemmed The role of an option-implied distribution in improving as asset allocation model
title_sort role of an option-implied distribution in improving as asset allocation model
publisher UTM Press
publishDate 2020
url http://irep.iium.edu.my/78720/
http://irep.iium.edu.my/78720/
http://irep.iium.edu.my/78720/
http://irep.iium.edu.my/78720/1/01_2018%20The%20role%20of%20an%20option-implied%20distribution%20in%20improving%20an%20asset%20allocation%20model.pdf
first_indexed 2023-09-18T21:50:51Z
last_indexed 2023-09-18T21:50:51Z
_version_ 1777413759445237760

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