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Portfolio optimisation with options

Author

Listed:
  • Jonathan Raimana Chan
  • Thomas Huckle
  • Antoine Jacquier
  • Aitor Muguruza

Abstract

We develop a new analysis for portfolio optimisation with options, tackling the three fundamental issues with this problem: asymmetric options' distributions, high dimensionality and dependence structure. To do so, we propose a new dependency matrix, built upon conditional probabilities between options' payoffs, and show how it can be computed in closed form given a copula structure of the underlying asset prices. The empirical evidence we provide highlights that this approach is efficient, fast and easily scalable to large portfolios of (mixed) options.

Suggested Citation

  • Jonathan Raimana Chan & Thomas Huckle & Antoine Jacquier & Aitor Muguruza, 2021. "Portfolio optimisation with options," Papers 2111.12658, arXiv.org.
    • Handle: RePEc:arx:papers:2111.12658
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    References listed on IDEAS

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