Research Reports from the Department of Operations
Document Type
Dissertation
Publication Date
8-1-1982
Abstract
Stock options are distinguished from more conventional investment vehicles by the contingent claim status of the option and the dependence of the value of the option on the value of a related common stock. As a result of these properties, portfolios which include options behave differently from diversified equity portfolios consisting of common stocks alone. The behavior of portfolios which include options is the primary focus of this research. Assuming that risk-averse investors maximize utility by minimizing risk at every level of expected return, a technique for constructing stock/option portfolios is devised. If option prices conform to the equilibrium values computed by the Black-Scholes option pricing formula, the technique produces portfolios including options which dominate portfolios without options over a one period horizon. Two alternative finite period option pricing models are developed and compared with the Black-Scholes model. In equilibrium, mean-variance investors would be indifferent between holding diversified portfolios of common stocks alone, or portfolios including options, if options were prices according to either of the alternative pricing models.
Keywords
Operations research, Stocks, Stock options, Options (Finance), Utility theory
Publication Title
Dissertation, Department of Operations, School of Management, Case Western Reserve University
Issue
Technical memorandum no. 514 ; Submitted in partial fulfillment of the requirements for the Degree of Doctor of Philosophy.
Rights
This work is in the public domain and may be freely downloaded for personal or academic use
Recommended Citation
Symes, Robin Scott, "Portfolio Management Techniques for the Selection of Stock/Option Positions" (1982). Research Reports from the Department of Operations. 418.
https://commons.case.edu/wsom-ops-reports/418