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International Assets Allocation with Risk Management via Multi-Stage Stochastic Programming

Author

Listed:
  • Libo Yin

    (Beihang University)

  • Liyan Han

    (Beihang University)

Abstract

In this paper, we develop a multi-stage stochastic programming model for dynamic international portfolio risk management with options in an integrated view. Upon scenario trees, the model can automatically compute the optimal hedging strategies, which provides rolling and dynamic decisions for how much option positions should be established and how much should be liquidated, while simultaneously allocating the corresponding underlying assets. Extensive numerical analyses strongly verify the effectiveness of the model, especially in market downturns, and support the computational feasibility and performance of the model.

Suggested Citation

  • Libo Yin & Liyan Han, 2020. "International Assets Allocation with Risk Management via Multi-Stage Stochastic Programming," Computational Economics, Springer;Society for Computational Economics, vol. 55(2), pages 383-405, February.
    • Handle: RePEc:kap:compec:v:55:y:2020:i:2:d:10.1007_s10614-013-9365-z
    DOI: 10.1007/s10614-013-9365-z
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    1. Ashrafi, Hedieh & Thiele, Aurélie C., 2021. "A study of robust portfolio optimization with European options using polyhedral uncertainty sets," Operations Research Perspectives, Elsevier, vol. 8(C).

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