18.10 Creating Portfolio Insurance Using Synthetic Puts
In Chapter 13, it was seen that portfolio insurance can be obtained by using a protective put strategy. In
a protective put strategy, it was seen that portfolio insurance can be provided by combining a put option
with a stock, as any decrease in the stock price will be exactly oset by an increase in the value of the put
such that a minimum value of the portfolio will be maintained if the stock price is below the exercise price
and the value of the portfolio will increase by INR 1 for each INR 1 increase in the stock price. is is how
portfolio insurance is provided. ...
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