Performance of Option Based Strategy Benchmark Index

Soon Shin Kwon (Soongsil University)
Byung Jin Kang (Soongsil University)
Jay M. Chung (Soongsil University)

Journal of Derivatives and Quantitative Studies: 선물연구

ISSN: 1229-988X

Article publication date: 31 May 2018

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Abstract

This paper develops “Strategy Benchmark Index (SBI)” using KOSPI200 options data from January 2004 to March 2017, and then investigates their performances. The SBIs were constructed in the same way as those published daily by CBOE. To effectively analyze the performance of these SBIs, we classified them into four types : (1) Return enhancement SBIs (six indices), (2) Volatility trading SBIs (two indices), (3) Directional trading SBIs (two indices) and (4) Other SBIs (two indices). The return enchancement SBIs include bechmark indices tracking the performance of various covered call strategies and put writing strategies, which are generally used to increase investment returns. The volatility trading SBIs include benchmark indices tracking the performance of well-known volatility trading strategies such as butterfly spread and condor. Benchmark indices tracking the performance of various types of zero-cost collar strategies are classified into the directional trading SBIs. Our empirical results are as follows. First, the risk-adjusted performances of nine SBIs of the total twelve SBIs constructed from KOSPI200 index options has been shown to be great. Second, from a portfolio perspective, some SBIs can be helpful to improve the portfolio performance of CRRA (Constant Relative Risk Aversion) investors. These results imply that passive investment strategies with KOSPI200 index options can provide additional benefits that both equities and bonds do not provide. Third, even when we use the traditional mean-variance framework other than expected utility theory to verify the economic benefit of the SBIs, our empirical results are found to be still valid. In conclusion, our results suggest that some passive investment strategies using KOSPI200 index options would be beneficial to long term investors.

Keywords

Citation

Kwon, S.S., Kang, B.J. and Chung, J.M. (2018), "Performance of Option Based Strategy Benchmark Index", Journal of Derivatives and Quantitative Studies: 선물연구, Vol. 26 No. 2, pp. 183-216. https://doi.org/10.1108/JDQS-02-2018-B0002

Publisher

:

Emerald Publishing Limited

Copyright © 2018 Emerald Publishing Limited

License

This article is published under the Creative Commons Attribution (CC BY 4.0) licence. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this licence may be seen at http://creativecommons.org/licences/by/4.0/legalcode


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