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Sharpe Ratio and Return-VaR Ratio Maximization for Option Portfolios with Skew-Elliptical $t$ Underlying Returns

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  • Kyle Sung
  • Traian A. Pirvu

Abstract

We provide a formulation for optimal option portfolios under Sharpe Ratio maximization when the underlying returns follow a skew-elliptical t-distribution. This departs from the traditional normal returns setting in the context of Sharpe ratio maximization by allowing the modelling of heavy-tailed and skewed dynamics. The novelty of this paper and our main result is to provide explicit formulas for the portfolio weights when maximizing the Sharpe ratio and return-to-Value-at-Risk (VaR) ratio in the skew-elliptical setting. Numerical experiments reveal that the optimal portfolios for the two ratios are different.

Suggested Citation

  • Kyle Sung & Traian A. Pirvu, 2026. "Sharpe Ratio and Return-VaR Ratio Maximization for Option Portfolios with Skew-Elliptical $t$ Underlying Returns," Papers 2606.17032, arXiv.org.
    • Handle: RePEc:arx:papers:2606.17032
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    File URL: http://arxiv.org/pdf/2606.17032
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