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complyorexplain
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Posts: 65
Joined: November 9th, 2015, 8:59 am

Option on a portfolio

February 16th, 2019, 5:25 pm

I have looked for, but cannot find, an option where you take all the losses on a portfolio of assets below a certain %.
I.e. specify the assets to which the option applies, the notional amount held in each, and the starting price for each. Then agree to take all losses where the fall at expiry exceeds e.g. 10%, in return for a premium.
Any help welcomed.
 
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Alan
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Joined: December 19th, 2001, 4:01 am
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Re: Option on a portfolio

February 16th, 2019, 6:21 pm

It's just a portfolio of options: buy N single name puts on the individual assets. By the "law of one price", that would be the cost for what you want.
Last edited by Alan on February 16th, 2019, 6:22 pm, edited 1 time in total.
 
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tw
Posts: 1013
Joined: May 10th, 2002, 3:30 pm

Re: Option on a portfolio

February 16th, 2019, 6:21 pm

I have looked for, but cannot find, an option where you take all the losses on a portfolio of assets below a certain %.
I.e. specify the assets to which the option applies, the notional amount held in each, and the starting price for each. Then agree to take all losses where the fall at expiry exceeds e.g. 10%, in return for a premium.
Any help welcomed.
passport option
 
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bearish
Posts: 4578
Joined: February 3rd, 2011, 2:19 pm

Re: Option on a portfolio

February 16th, 2019, 9:20 pm

I think both answers are wrong, but largely because the question was not posed in very readable English. Both the headline and the first couple of sentences are highly suggestive of a put written on the portfolio, which is certainly cheaper than a portfolio of puts on the individual assets (barring the pathological cases of a single asset portfolio and a portfolio of perfectly correlated assets). Since there is no suggestion of active trading of the portfolio, the passport option is also not right (I was involved in hedging a real one of these sometime around 2001 - it's a stupid product). So, I think the real answer is to search for "basket option" and see where that takes you. As usual, Wikipedia is a perfectly fine place to start...
 
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complyorexplain
Topic Author
Posts: 65
Joined: November 9th, 2015, 8:59 am

Re: Option on a portfolio

February 16th, 2019, 10:46 pm

It's just a portfolio of options: buy N single name puts on the individual assets. By the "law of one price", that would be the cost for what you want.
(Smacks head). Yes, that is exactly it.

(To Bearish) silly title for the post. Should have been 'Portfolio of options'.

Thanks all.
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