Market timers are traders who vary their allocation between equity and bonds so as to optimize the
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Market timers are traders who vary their allocation between equity and bonds so as to optimize the performance of their portfolios by trading off one market versus the other. Rather than physically trade in the two markets, you want to avail yourself of the best return from the bond or stock markets over the next year using an option. Suggest an option that will provide you this result. (Feel free to define the option’s terms.) What factors drive the value of this option?
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An option that can fit your needs is a Rainbow option A Rainbow option is a type of option contract that provides the holder with the right to receive ...View the full answer
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