Compute a more correct estimate of portfolio risk

Reference no: EM1340357

Since options have no value, there is no way one can truly figure out his Alpha or Beta number for risk. The standard deviation model needs to be modified to allow for derivatives (based on type, contract length and how purchased). This could help calculate a more correct estimate of portfolio risk.

One of the circumstances is based on structured debt (bonds) during times of interest rates rising will likely lose value, so this is risk. Put based in an account of a young investor with not too much equity before a market/stock(s) rally if the derivative is covered or uncovered. That will decrease the risk.

Question: Isn't an options risk already measured by its volatility? Is the answer perhaps to adjust for leverage in the portfolio? Isn't portfolio insurance (buying puts) a rather expensive long-term strategy?

Reference no: EM1340357

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