Anmerkungen:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments October 12, 2019 erstellt
Beschreibung:
Traditional plain vanilla options can be regarded as options on a simple return. These options have convex payoffs and as a consequence of Jensen's inequality, their prices are increasing as a function of maturity in the absence of interest rate. This makes long dated call options as excessively expensive in relationship to the fraction of the insured portfolio. We show that replacing a simple return payoff with the log return call option payoff leads to substantial savings while providing the same protection type. The call options on log return have a favorable price for very long maturities in the scale of decades, making them attractive for long term investment funds, such as pension funds