Equity Portfolio Management Using Option Price Information
29 Pages Posted: 4 Apr 2014
Date Written: April 2, 2014
We survey the recent academic literature that uses option-implied information to construct equity portfolios. Studies show that equity managers can earn a positive alpha by using information in individual equity options, by using stocks' exposure to information in market index options, and by using stocks' exposure to crude oil option information. Option-implied information can also help construct better mean-variance portfolios and better estimates of market beta.
Keywords: option-implied volatility; commodity futures; cross-section of stocks; option-implied beta; mean-variance optimization.
JEL Classification: G12
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