Improving Portfolio Selection Using Option-Implied Volatility and Skewness

Our objective in this paper is to examine whether one can use option-implied information to improve the selection of portfolios with a large number of stocks, and to document which aspects of option-implied information are most useful for improving their out-of-sample performance.

Auteur(s) :

Victor DeMiguel

London Business School

Yuliya Plyakha

Goethe University Frankfurt

Raman Uppal

CEPR and EDHEC Business School

Grigory Vilkov

Goethe University Frankfurt

Portfolio performance is measured in terms of four metrics: volatility, Sharpe ratio, certainty-equivalent return and turnover. Our empirical evidence shows that, while using option-implied volatility and correlation does not significantly improve the portfolio volatility, Sharpe ratio and certainty-equivalent return, exploiting information contained in the volatility risk premium and option- implied skewness substantially increases both the Sharpe ratio and certainty- equivalent return, although this is accompanied by higher turnover. Moreover, the volatility risk premium and option-implied skewness help improve not just the performance of mean-variance portfolios, but also the performance of parametric portfolios developed in Brandt, Santa-Clara and Valkanov (2009).
Pdf
Improving Portfolio Selection Using Option-Implied Volatility and Skewness...
(-1.00 B)
Type : Working paper
Date : le 03/01/2011
Complément d'informations For more information, please contact Joanne Finlay, EDHEC Research and Development Department [ joanne.finlay@edhec.edu ] The contents of this paper do not necessarily reflect the opinions of EDHEC Business School.
Pôle de recherche Finance

A voir également

Les métiers du sport à l'honneur à l'EDHEC
Actualités
- 20-04-2018
Organisée par l'Association EDHEC Junior Alumni, cette conference a accueilli des...
Expert Talk - Jean-Louis Raynaud :
Actualités
- 19-04-2018
Avec les enjeux auxquels les dirigeants sont confrontés aujourd’hui, comment devenir un...
Exposition : Art is everywhere
Actualités
- 16-04-2018
Fort de l'enthousiasme qu'a suscité la première édition de son exposition Art is...
Soutenir la dynamique entrepreneuriale de nos étudiants avec Station F
Actualités
- 16-04-2018
Station F, dont la mission est de faire émerger une nouvelle génération d’entrepreneurs...