Solving optimal investment problems with structured products under CVaR constraints

Solving optimal investment problems with structured products under CVaR constraints

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Article ID: iaor200973303
Volume: 58
Issue: 3
Start Page Number: 291
End Page Number: 304
Publication Date: Apr 2009
Journal: Optimization
Authors: ,
Keywords: value at risk
Abstract:

We consider a simple investment problem where besides stocks and bonds the investor can also include options (or structured products) into the investment portfolio. The aim of the investor is to maximize the expected return under a conditional value-at-risk (CVaR) constraint. Due to possible intermediate payments, we have to deal with a re-investment problem which turns the original one-period problem into a multi-period one. For solving this problem, an iterative scheme based on linear optimization is developed.

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