License: Creative Commons Attribution 3.0 Unported license (CC BY 3.0)
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DOI: 10.4230/OASIcs.SCOR.2016.9
URN: urn:nbn:de:0030-drops-65216
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Maasar, Mohd A. ; Roman, Diana ; Date, Paresh

Portfolio Optimisation Using Risky Assets with Options as Derivative Insurance

OASIcs-SCOR-2016-9.pdf (2 MB)


We introduce options on FTSE100 index in portfolio optimisation with shares in which conditional value at risk (CVaR) is minimised. The option considered here is the one that follows FTSE100 Index Option standards. Price of options are calculated under the risk neutral valuation. The efficient portfolio composed under this addition of options shows that put option will be selected as part of the investment for every level of targeted returns. Main finding shows that the use of options does indeed decrease downside risk, and leads to better in-sample portfolio performance. Out-of-sample and back-testing also shows better performance of CVaR efficient portfolios in which index options are included. All models are coded using AMPL and the results are analysed using Microsoft Excel. Data used in this study are obtained from Datastream. We conclude that adding a put index option in addition to stocks, in order to actively create a portfolio, can substantially reduce the risk at a relatively low cost. Further research work will consider the case when short positions are considered, including writing call options.

BibTeX - Entry

  author =	{Mohd A. Maasar and Diana Roman and Paresh Date},
  title =	{{Portfolio Optimisation Using Risky Assets with Options as Derivative Insurance}},
  booktitle =	{5th Student Conference on Operational Research (SCOR 2016)},
  pages =	{9:1--9:17},
  series =	{OpenAccess Series in Informatics (OASIcs)},
  ISBN =	{978-3-95977-004-0},
  ISSN =	{2190-6807},
  year =	{2016},
  volume =	{50},
  editor =	{Bradley Hardy and Abroon Qazi and Stefan Ravizza},
  publisher =	{Schloss Dagstuhl--Leibniz-Zentrum fuer Informatik},
  address =	{Dagstuhl, Germany},
  URL =		{},
  URN =		{urn:nbn:de:0030-drops-65216},
  doi =		{10.4230/OASIcs.SCOR.2016.9},
  annote =	{Keywords: Portfolio optimisation, portfolio insurance, option pricing, mean-CVaR}

Keywords: Portfolio optimisation, portfolio insurance, option pricing, mean-CVaR
Collection: 5th Student Conference on Operational Research (SCOR 2016)
Issue Date: 2016
Date of publication: 23.08.2016

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