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Options strategies for international portfolios with overall risk management via multi-stage stochastic programming

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  • Libo Yin
  • Liyan Han

Abstract

This paper proposes a multi-stage stochastic programming model to explore optimal options strategies for international portfolios with overall risk management on Greek letters, extending existing Greek-based analysis to dynamic and nondeterministic programming under uncertainty. The contribution to the existing literature are overall control on the time-varying Greek letters, state-contingent decision dynamics in consistent with the projected outcomes of the changing information, and a holistic view for optimizing the portfolio of assets and options. Empirical results show the model possesses considerable benefits in terms of larger profit margins, greater stability of returns and higher hedging efficiency compared to traditional methods. Copyright Springer Science+Business Media New York 2013

Suggested Citation

  • Libo Yin & Liyan Han, 2013. "Options strategies for international portfolios with overall risk management via multi-stage stochastic programming," Annals of Operations Research, Springer, vol. 206(1), pages 557-576, July.
    • Handle: RePEc:spr:annopr:v:206:y:2013:i:1:p:557-576:10.1007/s10479-013-1375-7
    DOI: 10.1007/s10479-013-1375-7
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    2. Barro, Diana & Consigli, Giorgio & Varun, Vivek, 2022. "A stochastic programming model for dynamic portfolio management with financial derivatives," Journal of Banking & Finance, Elsevier, vol. 140(C).

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