Multistage optimization of option portfolio using higher order coherent risk measures

Yassine Matmoura and Spiridon Penev

European Journal of Operational Research, 2013, vol. 227, issue 1, 190-198

Abstract: Choosing a suitable risk measure to optimize an option portfolio’s performance represents a significant challenge. This paper is concerned with illustrating the advantages of Higher order coherent risk measures to evaluate option risk’s evolution. It discusses the detailed implementation of the resulting dynamic risk optimization problem using stochastic programming. We propose an algorithmic procedure to optimize an option portfolio based on minimization of conditional higher order coherent risk measures. Illustrative examples demonstrate some advantages in the performance of the portfolio’s levels when higher order coherent risk measures are used in the risk optimization criterion.

Keywords: Coherent risk measures; Duality; Average value-at-risk; Monte Carlo simulation; Kusuoka measure; Stochastic programming (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:227:y:2013:i:1:p:190-198

DOI: 10.1016/j.ejor.2012.12.013

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