Lunch Seminar Mathematics & Statistics - 2020/2021

Interviene: Giorgio Consigli, Università degli studi di Bergamo

Link: aula virtuale Teams (accedi qui) 

Abstract 

Stochastic optimization models have been extensively applied to financial portfolios and have proven their effectiveness in asset and asset-liability management. Occasionally, however, they have been applied to dynamic portfolio problems including not only assets traded in secondary markets but also derivative contracts such as options or futures with their dedicated risk profiles and associated modeling complexities. Such extension allows the construction of asymmetric payoffs for hedging or speculative purposes but also leads to several mathematical issues.  In this article we analyse the potential of such extension from a modeling and a methodological viewpoints. We consider an asset universe and model portfolio set-up including equity, bonds, money market, a volatility-based exchange-traded-fund (ETF) and  over-the-counter (OTC) option contracts on the equity.  By introducing an optimal trade-off problem based on expected wealth and Conditional Value-at-Risk (CVaR), we show that any of the above financial optimization problems can be formulated as a linear program. An extended computational part is presented to validate the proposed modeling and methodological approach.