Title:
Optioned Portfolio Selection: Models and Analysis

Authors:
Jianfeng Liang
Department of Systems Engineering and Engineering Management
The Chinese University of Hong Kong
Shatin, Hong Kong.

Shuzhong Zhang
Department of Systems Engineering and Engineering Management
The Chinese University of Hong Kong
Shatin, Hong Kong

Duan Li
Department of Systems Engineering and Engineering Management
The Chinese University of Hong Kong
Shatin, Hong Kong

Abstract:
We study in this paper the portfolio selection problem
with a stock index and European style options on the index. A
refined mean-variance methodology is adopted in the study.
Single-stage and two-stage investment models are studied and
solved. In the later case a scenario tree and stochastic
programming formulation are used. Explicit forms of the optimal
portfolio and its corresponding efficient frontier are derived,
which reveal rich structures of the optimal payoffs. Finally,
illustrative numerical examples are presented.