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An Engine, Not a CameraHow Financial Models Shape Markets$
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Donald Mackenzie

Print publication date: 2006

Print ISBN-13: 9780262134606

Published to MIT Press Scholarship Online: August 2013

DOI: 10.7551/mitpress/9780262134606.001.0001

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The Fall

The Fall

Chapter:
(p.178) (p.179) 7 The Fall
Source:
An Engine, Not a Camera
Author(s):

Donald MacKenzie

Publisher:
The MIT Press
DOI:10.7551/mitpress/9780262134606.003.0007

This chapter demonstrates how the options theory helped to prevent a stock portfolio from falling below an established level. The theory suggested that more portfolios would be sold when such portfolios start receding toward the established level. The chapter finds that less or no stock portfolios would be available for selling if the portfolios declined below the established level. The theory also provided quantitative guidance on how to achieve this objective in a way that reflected the desired result accurately. All economists and market analysts agreed that portfolio insurance would fail to protect stock portfolios from declining below the established level in the absence of jump protection.

Keywords:   options theory, stock portfolio, economists, market analysts, jump protection

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