Asset allocation using option-implied moments

Bahaludin, Hafizah and Abdullah, Mimi Hafizah and Tolos, Siti Marponga (2017) Asset allocation using option-implied moments. In: 1st International Conference on Applied & Industrial Mathematics and Statistics (ICoAIMS 2017), 8-9 Aug 2017, Pahang.

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Abstract

This study uses an option-implied distribution as the input in asset allocation. The computation of risk-neutral densities (RND) are based on the Dow Jones Industrial Average (DJIA) index option and its constituents. Since the RNDs estimation does not incorporate risk premium, the conversion of RND into risk-world density (RWD) is required. The RWD is obtained through parametric calibration using the beta distributions. The mean, volatility, and covariance are then calculated to construct the portfolio. The performance of the portfolio is evaluated by using portfolio volatility and Sharpe ratio.

Item Type:	Conference or Workshop Item (Plenary Papers)
Additional Information:	4482/57990
Uncontrolled Keywords:	Asset allocation, option-implied moments
Subjects:	Q Science > QA Mathematics
Kulliyyahs/Centres/Divisions/Institutes (Can select more than one option. Press CONTROL button):	Kulliyyah of Science
Depositing User:	Ms Mimi Hafizah Abdullah
Date Deposited:	18 Aug 2017 09:24
Last Modified:	09 Oct 2019 08:55
URI:	http://irep.iium.edu.my/id/eprint/57990

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