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Efficient Selection of Insured Currency Positions: Protective Puts vs. Fiduciary Calls

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  • Conover, James A.
  • Dubofsky, David A.

Abstract

We examine the empirical results from implementation of portfolio insurance strategies employing currency spot and futures options. Hypotheses are generated from Ogden and Tucker's (1988) generalizations concerning the relative values of American spot currency options and currency futures options. We find that protective puts using futures options are generally dominated by both protective puts that use options on spot currencies and by fiduciary calls on futures contracts. This suggests that the prices of puts on foreign currency futures contracts are too high, relative to foreign currency futures calls and to puts on spot currencies.

Suggested Citation

  • Conover, James A. & Dubofsky, David A., 1995. "Efficient Selection of Insured Currency Positions: Protective Puts vs. Fiduciary Calls," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 30(2), pages 295-312, June.
    • Handle: RePEc:cup:jfinqa:v:30:y:1995:i:02:p:295-312_00
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    Cited by:

    1. Qi-Wen Wang & Jian-Jun Shu, 2017. "Financial option insurance," Papers 1708.02180, arXiv.org.
    2. Lam, Kin & Lean, Hooi Hooi & Wong, Wing-Keung, 2016. "Stochastic Dominance and Investors’ Behavior towards Risk: The Hong Kong Stocks and Futures Markets," MPRA Paper 74386, University Library of Munich, Germany.
    3. Bhargava, Vivek & Brooks, Robert, 2002. "Exploration of the role of expectations in foreign exchange risk management," Journal of Multinational Financial Management, Elsevier, vol. 12(2), pages 171-189, April.
    4. Libo Yin & Liyan Han, 2015. "Hedging International Foreign Exchange Risks via Option Based Portfolio Insurance," Computational Economics, Springer;Society for Computational Economics, vol. 45(1), pages 151-181, January.
    5. Qi-Wen Wang & Jian-Jun Shu, 2017. "Financial option insurance," Risk Management, Palgrave Macmillan, vol. 19(1), pages 72-101, February.

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