Examples of risk-increasing and risk-reducing options techniques to scale up or reduce overall portfolio risk. Introduction: Options are used to supervise the portfolio risk. They can boost the risk as well as diminish it. There are two categories of options one is risk increase and the second is a risk decrease option.

Question

Want to see more full solutions like this?

Answer 1

Question

Chapter 20, Problem 1PS

Summary Introduction

To explain: Examples of risk-increasing and risk-reducing options techniques to scale up or reduce overall portfolio risk.

Introduction: Options are used to supervise the portfolio risk. They can boost the risk as well as diminish it. There are two categories of options one is risk increase and the second is a risk decrease option.

Expert Solution & Answer

Answer to Problem 1PS

The optional example of a risk-increasing option is at the money option while the protective put strategy is an example of a risk-reducing option technique.

Explanation of Solution

Given Information: Here a statement is provided that options are used to raise and reduce the portfolio risk.

Risk-increasing options- This technique boots up the level of portfolio risk while investing in particular folio, for example, at the money option. In this option the value of expiration will be null, hence it equates the asset price with an exercise price. These options are very risky but profitable also.

Risk-reducing options- This option reduces the risk with protection, for example, a protective put strategy. Investors invested in this option in the long run because the strike price is either lower than the market price or higher. The risk is reduced with full security of value in a particular portfolio.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Students have asked these similar questions

The maturity value of an $35,000 non-interest-bearing, simple discount 4%, 120-day note is:

Carl Sonntag wanted to compare what proceeds he would receive with a simple interest note versus a simple discount note. Both had the same terms: $18,905 at 10% for 4 years. Use ordinary interest as needed. Calculate the simple interest note proceeds. Calculate the simple discount note proceeds.

What you're solving for Solving for maturity value, discount period, bank discount, and proceeds of a note. What's given in the problem Face value: $55300 Rate of interest: 10% Length of note: 95 days Date of note: August 23rd Date note discounted: September 18th Bank discount rate:9 percent

Answer 2

Question

Chapter 20, Problem 1PS

Summary Introduction

To explain: Examples of risk-increasing and risk-reducing options techniques to scale up or reduce overall portfolio risk.

Introduction: Options are used to supervise the portfolio risk. They can boost the risk as well as diminish it. There are two categories of options one is risk increase and the second is a risk decrease option.

Expert Solution & Answer

Answer to Problem 1PS

The optional example of a risk-increasing option is at the money option while the protective put strategy is an example of a risk-reducing option technique.

Explanation of Solution

Given Information: Here a statement is provided that options are used to raise and reduce the portfolio risk.

Risk-increasing options- This technique boots up the level of portfolio risk while investing in particular folio, for example, at the money option. In this option the value of expiration will be null, hence it equates the asset price with an exercise price. These options are very risky but profitable also.

Risk-reducing options- This option reduces the risk with protection, for example, a protective put strategy. Investors invested in this option in the long run because the strike price is either lower than the market price or higher. The risk is reduced with full security of value in a particular portfolio.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 3

Question

Chapter 20, Problem 1PS

Summary Introduction

To explain: Examples of risk-increasing and risk-reducing options techniques to scale up or reduce overall portfolio risk.

Introduction: Options are used to supervise the portfolio risk. They can boost the risk as well as diminish it. There are two categories of options one is risk increase and the second is a risk decrease option.

Expert Solution & Answer

Answer to Problem 1PS

The optional example of a risk-increasing option is at the money option while the protective put strategy is an example of a risk-reducing option technique.

Explanation of Solution

Given Information: Here a statement is provided that options are used to raise and reduce the portfolio risk.

Risk-increasing options- This technique boots up the level of portfolio risk while investing in particular folio, for example, at the money option. In this option the value of expiration will be null, hence it equates the asset price with an exercise price. These options are very risky but profitable also.

Risk-reducing options- This option reduces the risk with protection, for example, a protective put strategy. Investors invested in this option in the long run because the strike price is either lower than the market price or higher. The risk is reduced with full security of value in a particular portfolio.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Question

Chapter 20, Problem 1PS

Summary Introduction

To explain: Examples of risk-increasing and risk-reducing options techniques to scale up or reduce overall portfolio risk.

Introduction: Options are used to supervise the portfolio risk. They can boost the risk as well as diminish it. There are two categories of options one is risk increase and the second is a risk decrease option.

Expert Solution & Answer

Answer to Problem 1PS

The optional example of a risk-increasing option is at the money option while the protective put strategy is an example of a risk-reducing option technique.

Explanation of Solution

Given Information: Here a statement is provided that options are used to raise and reduce the portfolio risk.

Risk-increasing options- This technique boots up the level of portfolio risk while investing in particular folio, for example, at the money option. In this option the value of expiration will be null, hence it equates the asset price with an exercise price. These options are very risky but profitable also.

Risk-reducing options- This option reduces the risk with protection, for example, a protective put strategy. Investors invested in this option in the long run because the strike price is either lower than the market price or higher. The risk is reduced with full security of value in a particular portfolio.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 20, Problem 1PS

Summary Introduction

To explain: Examples of risk-increasing and risk-reducing options techniques to scale up or reduce overall portfolio risk.

Introduction: Options are used to supervise the portfolio risk. They can boost the risk as well as diminish it. There are two categories of options one is risk increase and the second is a risk decrease option.

Expert Solution & Answer

Answer to Problem 1PS

The optional example of a risk-increasing option is at the money option while the protective put strategy is an example of a risk-reducing option technique.

Explanation of Solution

Given Information: Here a statement is provided that options are used to raise and reduce the portfolio risk.

Risk-increasing options- This technique boots up the level of portfolio risk while investing in particular folio, for example, at the money option. In this option the value of expiration will be null, hence it equates the asset price with an exercise price. These options are very risky but profitable also.

Risk-reducing options- This option reduces the risk with protection, for example, a protective put strategy. Investors invested in this option in the long run because the strike price is either lower than the market price or higher. The risk is reduced with full security of value in a particular portfolio.

Answer 6

Chapter 20, Problem 1PS

Summary Introduction

To explain: Examples of risk-increasing and risk-reducing options techniques to scale up or reduce overall portfolio risk.

Introduction: Options are used to supervise the portfolio risk. They can boost the risk as well as diminish it. There are two categories of options one is risk increase and the second is a risk decrease option.

Expert Solution & Answer

Answer to Problem 1PS

The optional example of a risk-increasing option is at the money option while the protective put strategy is an example of a risk-reducing option technique.

Explanation of Solution

Given Information: Here a statement is provided that options are used to raise and reduce the portfolio risk.

Risk-increasing options- This technique boots up the level of portfolio risk while investing in particular folio, for example, at the money option. In this option the value of expiration will be null, hence it equates the asset price with an exercise price. These options are very risky but profitable also.

Risk-reducing options- This option reduces the risk with protection, for example, a protective put strategy. Investors invested in this option in the long run because the strike price is either lower than the market price or higher. The risk is reduced with full security of value in a particular portfolio.

Answer 7

Chapter 20, Problem 1PS

Summary Introduction

To explain: Examples of risk-increasing and risk-reducing options techniques to scale up or reduce overall portfolio risk.

Introduction: Options are used to supervise the portfolio risk. They can boost the risk as well as diminish it. There are two categories of options one is risk increase and the second is a risk decrease option.

Answer 8

Expert Solution & Answer

Answer to Problem 1PS

The optional example of a risk-increasing option is at the money option while the protective put strategy is an example of a risk-reducing option technique.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Explanation of Solution

Given Information: Here a statement is provided that options are used to raise and reduce the portfolio risk.

Risk-increasing options- This technique boots up the level of portfolio risk while investing in particular folio, for example, at the money option. In this option the value of expiration will be null, hence it equates the asset price with an exercise price. These options are very risky but profitable also.

Risk-reducing options- This option reduces the risk with protection, for example, a protective put strategy. Investors invested in this option in the long run because the strike price is either lower than the market price or higher. The risk is reduced with full security of value in a particular portfolio.

Answer 12

Ch. 20 - Prob. 1PS Ch. 20 - Prob. 2PS Ch. 20 - Prob. 3PS Ch. 20 - Prob. 4PS Ch. 20 - Prob. 5PS Ch. 20 - Prob. 6PS Ch. 20 - Prob. 7PS Ch. 20 - Prob. 8PS Ch. 20 - Prob. 9PS Ch. 20 - Prob. 10PS

Concept explainers

Videos

Answer to Problem 1PS

Explanation of Solution

Want to see more full solutions like this?

Chapter 20 Solutions