The Impact Of Utilizing Option In Retirement Investing

Open Access
Lee, Byung Jin
Area of Honors:
Bachelor of Science
Document Type:
Thesis Supervisors:
  • James Alan Miles, Thesis Supervisor
  • James Alan Miles, Honors Advisor
  • William Kracaw, Faculty Reader
  • retirement investing
  • options
  • treasury bills
  • risk
As people are retiring early in order to add more values in their later lives, the concept of retirement investing is, today, a great concern for millions and billions of people around the world. Common retirement funds provided in companies, such as, Vanguard, Fidelity and Blackrock, focus their main allocation on market indices and diversify their portfolios with international stocks and bonds. The financial crisis in 2008 inflicted a significant recession in the U.S. economy and a greater uncertainty towards investing in market indices, such as the S&P 500 index. Past academic research reports that a safer investment strategy can be achieved by combining two financial instruments: call options and treasury bills. This paper examines various comparisons between the new investment method and other retirement strategies. I use simulation of hypothetical S&P 500 index prices to compare the value of investment from different strategies. The results from the simulation and its analysis show that the use of treasury bills and call options provides downside protection at the expense of slightly reduced upside potential. Regarding the riskiness, this new investment method for retirement becomes an attractive strategy for risk-averse investors.