Optimal option portfolio selection with simulation techniques

Optimal option portfolio selection with simulation techniques

We propose a method to solve the problem of asset allocation for option portfolios using simulations. Our method improved the OOPS(Optimal option portfolio strategies) proposed by Jose and Santa. We apply a simulation method based on Heston volatility model and optimization method based on utility m...

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Bibliographic Details
Main Author: Liu, Bingyan
Other Authors: PUN Chi Seng
Format: Final Year Project
Language:English
Published: Nanyang Technological University 2020
Subjects:
Science::Mathematics::Applied mathematics::Simulation and modeling
Science::Mathematics::Applied mathematics::Optimization
Online Access:https://hdl.handle.net/10356/139429
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Institution: Nanyang Technological University
Language: English
Description
Summary:We propose a method to solve the problem of asset allocation for option portfolios using simulations. Our method improved the OOPS(Optimal option portfolio strategies) proposed by Jose and Santa. We apply a simulation method based on Heston volatility model and optimization method based on utility maximization of constant relative risk aversion function. A detailed algorithm is designed to support dynamic rebalance of the option portfolio. The method has achieved a Sharpe ratio of 1.73.

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