Still Not Cheap: <i>Portfolio Protection in Calm Markets</i>

Abstract

Recent equity volatility is near all-time lows. Option prices are also low. Many analysts suggest this represents a good opportunity to purchase put options for portfolio insurance. It is well-known that portfolio insurance is expensive on average, but what about in calm markets? History suggests it still is. The authors investigate the relationship between option richness and volatility across 10 global equity indexes. Option prices may be low, but their expected values tend to be even lower. <b>TOPICS:</b>Global, portfolio management/multi-asset allocation