Solving optimal investment problems with structured products under CVaR constraints


Korn R., Zeytun S.

OPTIMIZATION, vol.58, no.3, pp.291-304, 2009 (SCI-Expanded) identifier identifier

  • Publication Type: Article / Article
  • Volume: 58 Issue: 3
  • Publication Date: 2009
  • Doi Number: 10.1080/02331930902741739
  • Journal Name: OPTIMIZATION
  • Journal Indexes: Science Citation Index Expanded (SCI-EXPANDED), Scopus
  • Page Numbers: pp.291-304
  • Middle East Technical University Affiliated: Yes

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.