International Assets Allocation with Risk Management via Multi-Stage Stochastic Programming

Libo Yin () and Liyan Han
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Liyan Han: Beihang University

Computational Economics, 2020, vol. 55, issue 2, No 1, 383-405

Abstract: Abstract In this paper, we develop a multi-stage stochastic programming model for dynamic international portfolio risk management with options in an integrated view. Upon scenario trees, the model can automatically compute the optimal hedging strategies, which provides rolling and dynamic decisions for how much option positions should be established and how much should be liquidated, while simultaneously allocating the corresponding underlying assets. Extensive numerical analyses strongly verify the effectiveness of the model, especially in market downturns, and support the computational feasibility and performance of the model.

Keywords: Stochastic programming; Option hedging strategy; Risk management; Portfolio optimization (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1007/s10614-013-9365-z

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