Option – Alloction funds- Transaction costs

The present article studies the efficiency of a strategy, incorporating some options and seeking to super-duplicate a standard allocation policy. The replication strategy allows reducing transaction cost effects. The replication means optimizing two objective-functions: MSE (Mean-squared Errors) and WMSE (Weighted Mean-squared Errors). Tests on portfolio efficiency concern, at first time, a long-term investor with Out-The-Country options and strike prices are approximate by a multiplicative binomial tree. At second time, the empirical evidence poses the case of a short-term investment, on CAC40 index and VX6 options of terms 6 months. Results prove the presence of portfolios based on options and more efficient than an active allocation strategy. The optimal behavior of the economic agent is a function of the number and the type of options introduced in the optimization problem.


Public Finance and Finance Engineering Research Centre – IAE Nice - French.