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Optimal Option Portfolios for Student t Returns

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  • Kyle Sung
  • Traian A. Pirvu

Abstract

We provide an explicit solution for optimal option portfolios under variance and Value at Risk (VaR) minimization when the underlying returns follow a Student t-distribution. The novelty of our paper is the departure from the traditional normal returns setting. Our main contribution is the methodology for obtaining optimal portfolios. Numerical experiments reveal that, as expected, the optimal variance and VaR portfolio compositions differ by a significant amount, suggesting that more realistic tail risk settings can lead to potentially more realistic portfolio allocations.

Suggested Citation

  • Kyle Sung & Traian A. Pirvu, 2026. "Optimal Option Portfolios for Student t Returns," Papers 2601.07991, arXiv.org.
    • Handle: RePEc:arx:papers:2601.07991
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    File URL: http://arxiv.org/pdf/2601.07991
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