Microsoft PowerPoint - PoF.ppt

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Portfolio insuranceƒ 171

The return relationship of a put and the underlying asset are fundamentally different. This makes puts ideal instruments for insuring against price declines.
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Example

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1 long share of stock, 1 long put

on the stock with exercise price E

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Payoff table of a hedge
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The portfolio’s value is thus boun

ded below by the exercise price E.

Derivative securities: Options - Introduction

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