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Derivatives

Rebalancing using options

Today, most institutional investors define a strategic asset allocation (SAA) that governs their investments and exposures across all sorts of asset classes. A typical SAA does not only contain a particular percentage point but also an upper and a lower boundary for each asset class. In case market prices of those asset classes move significantly, the boundaries serve as trigger points to buy or sell assets in order to rebalance the portfolio back to the target SAA. Christoph Gort, partner at SIGLO Capital Advisors, provides highlights from a research paper, in association with the Chicago Board Options Exchange, as to whether investors can rebalance a multi-asset class portfolio with such a SAA more systematically and more efficiently by writing call and put options.

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