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How Large are the Benefits from Using Options?

Published online by Cambridge University Press:  06 April 2009

Anthony Neuberger  and
Stewart Hodges
Anthony Neuberger
Affiliation:
[email protected], Institute of Finance and Accounting, London Business School, Regents Park, London NW1 4SA, U.K.
Stewart Hodges
Affiliation:
[email protected], Financial Options Research Centre, Warwick Business School, University of Warwick, Coventry CV4 7AL, U.K.
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Abstract

The paper explores the economic value of being able to span market outcomes through the use of options. We model an economy with a single risky asset. Consumption takes place at one date, corresponding to the horizon of all investors. Options on the consumption good are not redundant securities in the economy because volatility is uncertain. The model enables us to examine the benefits to investors of using options to optimize their investments. Within this model, the gains from the use of options appear to be relatively minor.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 37 , Issue 2 , June 2002 , pp. 201 - 220
Copyright
Copyright © School of Business Administration, University of Washington 2002

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