{"title":"The cash-secured put-write strategy and the variance risk premium","authors":"Pratish Patel, Andrew Raquel, Savannah Chadwick","doi":"10.1057/s41260-023-00333-0","DOIUrl":null,"url":null,"abstract":"<p>A cash-secured put-write (PUTW) strategy involves writing an at-the-money put option and setting aside enough cash to buy the underlying. Empirically, the PUTW returns outperform the returns predicted by the traditional one- three- and five-factor models. We explain the outperformance. A model where the market is subject to disasters generates a Variance Risk Premium (VRP), which reflects information about both the risk aversion and the impact of disasters. VRP, when added to the market factor, accounts for the PUTW outperformance. This factor also explains abnormal returns for other derivative strategies.</p>","PeriodicalId":45953,"journal":{"name":"Journal of Asset Management","volume":"5 2","pages":""},"PeriodicalIF":1.5000,"publicationDate":"2023-11-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Journal of Asset Management","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.1057/s41260-023-00333-0","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q3","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 0
Abstract
A cash-secured put-write (PUTW) strategy involves writing an at-the-money put option and setting aside enough cash to buy the underlying. Empirically, the PUTW returns outperform the returns predicted by the traditional one- three- and five-factor models. We explain the outperformance. A model where the market is subject to disasters generates a Variance Risk Premium (VRP), which reflects information about both the risk aversion and the impact of disasters. VRP, when added to the market factor, accounts for the PUTW outperformance. This factor also explains abnormal returns for other derivative strategies.
期刊介绍：
The Journal of Asset Management covers:new investment strategies, methodologies and techniquesnew products and trading developmentsimportant regulatory and legal developmentsemerging trends in asset managementUnder the guidance of its expert Editors and an eminent international Editorial Board, Journal of Asset Management has developed to provide an international forum for latest thinking, techniques and developments for the Fund Management Industry, from high-growth investment strategies to modelling and managing risk, from active management to index tracking. The Journal has established itself as a key bridge between applied academic research, commercial best practice and regulatory interests, globally.Each issue of Journal of Asset Management publishes detailed, authoritative briefings, analysis, research and reviews by leading experts in the field, to keep subscribers up to date with the latest developments and thinking in asset management.Journal of Asset Management covers:asset allocation hedge fund strategies risk definition and management index tracking performance measurement stock selection investment methodologies and techniques portfolio management and weighting product development and innovation active asset management style analysis strategies to match client profiles time horizons emerging markets alternative investments derivatives and hedging instruments pensions economics
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