6533b838fe1ef96bd12a4f79
RESEARCH PRODUCT
Optimal control of option portfolios and applications
Ralf KornSiegfried Trautmannsubject
Mathematical optimizationComputer scienceMathematics::Optimization and ControlTime horizonManagement Science and Operations ResearchOptimal controlMartingale (betting system)Computer Science::Computational Engineering Finance and ScienceValuation of optionsBusiness Management and Accounting (miscellaneous)PortfolioPosition (finance)Expected utility hypothesisStock (geology)description
We present an expected utility maximisation framework for optimally controlling a portfolio of options. By combining the replication approach to option pricing with ideas of the martingale approach to (stock) portfolio optimisation we arrive at an explicit solution of the option portfolio problem. Its characteristics are illustrated by some specific examples. As an application, we calculate an optimal option and consumption strategy for an investor who is obliged to hold a stock position until the time horizon.
| year | journal | country | edition | language |
|---|---|---|---|---|
| 1999-02-01 | OR Spectrum |