Commodity Trading Advisors - Risk, Performance Analysis, And by Greg N. Gregoriou

By Greg N. Gregoriou

Authoritative, updated examine and research that offers a dramatic new figuring out of the rewards-and risks-of making an investment in CTAs
Commodity buying and selling Advisors (CTAs) are an more and more renowned and most likely ecocnomic funding substitute for institutional traders and high-net-worth members. Commodity buying and selling Advisors is without doubt one of the first books to review their functionality intimately and study the "survivorship bias" found in CTA functionality information. This booklet investigates the various advantages and dangers linked to CTAs, studying the risk/return features of a few assorted recommendations deployed by means of CTAs from a worldly investor's standpoint. A contributed paintings, its editors and contributing authors are between contemporary best voices with regards to commodity buying and selling advisors and a veritable "Who's Who" in hedge fund and CTA research.
Greg N. Gregoriou (Plattsburgh, long island) is a traveling Assistant Professor of Finance and learn Coordinator within the tuition of industrial and Economics on the country college of recent York. Vassilios N. Karavas (Amherst, MA) is Director of study at Schneeweis companions. Francois-Serge Lhabitant (Coppet, Switzerland) is a reputation examine Fellow, and a Professor of Finance at EDHEC (France) and at HEC college of Lausanne (Switzerland). Fabrice Rouah (Montreal, Quebec) is Institut de Finance Mathématique de Montréal student within the finance application at McGill college.

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Extra resources for Commodity Trading Advisors - Risk, Performance Analysis, And Selection

Example text

By selling the stock short, the writer does not need to worry if the stock price drops further. However, if the stock price is much greater than the strike price at expiry then the writer will lose money. 14 Construction of a covered call. At time ???? the payoff of this portfolio is Ψ(???????? ) = −???????? − ???? (???????? , ???? ; ????, ???? ) = −???????? − max{???? − ???????? , 0} ⎧ −???? ⎪ ???? =⎨ ⎪ −???? ⎩ if ???????? ≥ ???? if ???????? < ???? whilst the profit is Υ(???????? ) = Ψ(???????? ) + ???????? + ???? (???????? , ????; ????, ???? ) ⎧ ???? − ???? + ???? (???? , ????; ????, ???? ) ???? ???? ⎪ ???? =⎨ ⎪ ???????? − ???? + ???? (???????? , ????; ????, ???? ) ⎩ if ???????? ≥ ???? if ???????? < ???? where we need to add the sale of ???????? and also the put option premium received at the start of the contract.

Solution: In buying a protective call the investor strategy is to protect profits from the rising stock price with respect to the strike price. By selling the stock the call holder assumes that the stock price will decline further. If the stock price is less than the strike at expiry time then the option will not be exercised and the call buyer will only lose the premium paid. 16 Construction of a protective call. whilst the profit is Υ(???????? ) = Ψ(???????? ) + ???????? − ????(???????? , ????; ????, ???? ) ⎧ ???? − ???? − ????(???? , ????; ????, ???? ) if ???? ≥ ???? ???? ???? ⎪ ???? =⎨ ⎪ ???????? − ???????? − ????(???????? , ????; ????, ???? ) if ???????? < ???? ⎩ where we need to add the sale of the stock at time ???? and deduct the call option premium paid at the beginning of the contract.

Based on the payoff and profit diagrams of a bull put spread, this hedging strategy would appeal to investors who have a bullish sentiment that the stock price will increase in value relative to the strike prices ????1 and ????2 . Hence, if ???????? > ????2 + ???? (???????? , ????; ????1 , ???? ) − ???? (???????? , ????; ????2 , ???? ) then the investor would make a profit but capped at a maximum gain based on the difference between the put premiums received and paid. However, if ???????? < ????2 + ???? (???????? , ????; ????1 , ???? ) − ???? (???????? , ????; ????2 , ???? ) then the investor would make a loss but limited to a maximum loss of ????1 − ????2 + ???? (???????? , ????; ????2 , ???? ) − ???? (???????? , ????; ????1 , ???? ) < 0.

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