Derivatives-based portfolio decisions: an expected utility insight

@article{EscobarAnel2022DerivativesbasedPD,
  title={Derivatives-based portfolio decisions: an expected utility insight},
  author={Marcos Escobar-Anel and Matt Davison and Yichen Zhu},
  journal={Annals of Finance},
  year={2022},
  volume={18},
  pages={217 - 246}
}
This paper challenges the use of stocks in portfolio construction, instead we demonstrate that Asian derivatives, straddles, or baskets could be more convenient substitutes. Our results are obtained under the assumptions of the Black–Scholes–Merton setting, uncovering a hidden benefit of derivatives that complements their well-known gains for hedging, risk management, and to increase utility in market incompleteness. The new insights are also transferable to more advanced stochastic settings… 

Optimal market completion through financial derivatives with applications to volatility risk

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