A Talk by
Tuesday, May 7th
5:45 PM Registration
6:00 PM Seminar Begins 7:30 PM Reception
Abstract
We develop a new method to optimize portfolios of options in a market where European calls and puts are available with many exercise prices for each of several potentially correlated underlying assets. We identify the combination of asset-specific option payoffs that maximizes the Sharpe ratio of the overall portfolio: such payoffs are the unique solution to a system of integral equations, which reduce to a linear matrix equation under suitable representations of the underlying probabilities. Even when implied volatilities are all higher than historical volatilities, it can be optimal to sell options on some assets while buying options on others, as hedging demand outweighs demand for asset-specific returns.
Biography
Paolo Guasoni holds the Stokes Chair in Financial Mathematics at Dublin City University since 2009 and specializes in Mathematical Finance. His research investigates the effects of market frictions, incentives, and preferences, in portfolio choice and asset pricing, and has appeared in the Journal of Financial Economics, Finance and Stochastics, Mathematical Finance, and Annals of Applied Probability. He has attracted funding by the European Research Council, the National Science Foundation, Science Foundation Ireland, and the European Commission. He serves as Associate Editor for Finance and Stochastics, Mathematical Finance, SIAM Journal in Financial Mathematics, Applied Mathematical Finance, and the European Journal of Finance.
Acknowledgments
Special thanks to the Fordham University Gabelli School of Business for hosting and sponsoring the seminar.
About the Series
The IAQF's Thalesians Seminar Series is a joint effort on the part of the IAQF (www.iaqf.org) and the Thalesians (www.thalesians.com). The goal of the series is to provide a forum for the exchange of new ideas and results related to the field of quantitative finance. This goal is accomplished by hosting seminars where leading practitioners and academics present new work, and following the seminars with a reception to facilitate further interaction and discussion.
