Year-end Sale % OFF 
Abstract
We develop a multistage portfolio optimization model that utilizes options for mitigating market risk in a dynamic setting. Due to the key role of scenarios in the quality of investment decisions, a new scenario generation method is proposed that characterizes the dynamic behavior of asset returns. This methodology takes the dependence structure of different asset returns into account, and also considers serial correlations of each of the asset returns. Moreover, it preserves marginal distributions of asset returns. Also, it precludes arbitrage opportunities. To investigate the role of options, we implement the scenario generation method on a set of stocks selected from the New York Stock Exchange. Results show the high performance of the proposed scenario generation method. Afterwards, the generated set of scenarios is used as the uncertainty set for the multistage portfolio optimization model. Static and dynamic assessments are used for measuring the performance of options in mitigating market risks and generating additional returns. Finally, backtesting simulations are used for assessing different trading strategies of options.
Published Version (
Free)
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callMore From: International Transactions in Operational Research
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
