Date of Conferral

2022

Degree

Ph.D.

School

Management

Advisor

David Bouvin

Abstract

This quantitative study addressed the absence of a simple investment model for private investors by analyzing the relationship between the portfolio returns and the investment performance using financial options. The purpose was to determine whether the financial options added to a portfolio can positively influence an investor’s portfolio performance when diversified properly. Modern portfolio theory and option pricing theory were tested to relate portfolio returns to the investment performance using financial options for individual investors in the United States. Secondary data from Yahoo Finance, New York Stock Exchange, Chicago Board of Options Exchange, and TD Ameritrade were used to perform correlation and regression analysis. A stratified sample was taken from the January 1, 2008, to December 31, 2010, timeframe and consisted of 33 set of portfolios containing stocks in the S&P 500 Index with financial options. The results are interpreted using key parameter estimates such as correlation coefficient, standard deviation, variance, and confidence interval with the alpha of 0.05. Results showed no significant correlation between portfolio return on a stock only portfolio and the investment performance on a portfolio containing stocks and financial options due to fast-changing market conditions, an additional cost of option premiums, and time decay of financial options. The implication for a positive social change was the simplified explanation of leveraging financial options in managing an investment portfolio while being mindful of associated costs. It could be used as a training resource to educate individual investors to make better investment choices.

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