Portfolio optimization with options

Abstract

In order to address the options returns non normality problem in the investment portfolio theory, this work project aims to discuss and present alternatives to the classic Markowitz risk/return paradigm. The following pages will exploit the Portfolio Selection Theory developed over the last decade, maximizing a standard CRRA utility function, and simulating (MonteCarlo) or deriving from the past data (Bootstrap) the path taken by the S&P 500 stock Index. To conclude, a 5 year back test is developed to evidence the practical implications of the several models exposed.