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Short-term and Long-term Strategies for Dealing with Financial Risk Exposures

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2
Author
Marcelo Henriques-de-Brito Ph.D. CFP
Category
Financial
Date Posted
2022/04/25
Date Retrieved
2022/09/22
Date Revised
Date Written
2022/04/25
Description
With a risk-return perspective this work presents an original framework enfolding several profit & loss diagrams for a variety of option strategies to be employed in the short-term either for hedging or for speculative purposes. This work also discusses performance evaluation of several diversified portfolios subjected to different rebalancing procedures during a three-year period using data for securities traded at the Brazilian exchange B3 so as to assess the effectiveness of long-term investment strategies. Besides comparing annualized returns data for risk-adjusted returns given by the information ratio is useful to provide insights on the effects of rebalancing and also on the ‘mean reversion’ principle. Furthermore resorting to risk budgeting knowledge and equations this work detects that the “1/N Rule” for portfolio diversification is more than just an empirical rule-of-thumb and there is sound theoretical evidence sustaining this wide-spread practical procedure. Last but not
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JEL Classifications
G11 G13 G10 G12 G15 G20 G23 G30 G00 A20 B26 B40 B41 D14 E37 F17 O16
Keywords
Option Strategies Derivatives Diversification Asset Allocation Financial Portfolio Rebalancing Portfolio Management Risk Return Financial Analysis Risk Management
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Pages
20
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URL
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4227074
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