A Model Free Approach to the Pricing of Downside Risk in Argentinean Stocks
Serie Documentos de Trabajo, Nro. 703, 2019
16 Pages Posted: 23 Dec 2019 Last revised: 3 May 2023
Date Written: November 1, 2019
The return dynamics of Argentina's main stock index, the SP Mer.Val., show a high level of volatility, signaling a higher degree of downside risk. To hedge against that specific risk, investors could buy put options. However, the Argentinean capital market lacks variety of hedging contracts. The basic availability of put options depends on the possibility of short selling the underlying security, i.e. transfer risk to a third party, something not properly developed in the domestic market. Since data processing power has geometrically increased in the last decades and some mathematic formulas that were helpful for calculation had been surpassed by data gathering and processing that helps to find a better estimate when necessary, in this paper we show the point calculating protection against downside risk in the Argentinean stock market, using real data and programming an algorithm to perform calculations instead of resorting the standard Black-Scholes-Merton formulae, by means of a model free approach to acknowledge the issue.
Keywords: Asset Pricing, Options-pricing, Insurance, Capital Markets
JEL Classification: C1, C3, N2, G11
Suggested Citation: Suggested Citation