Aurélie Thiele from the Engineering Management, Information and Systems Department at Southern Methodist University in Dallas, Texas will present at the Seminar on Monday September 24 at at 1:15pm in Room 105 of Nedderman Hall. Dr. Thiele’s presentation title, abstract, and biographical sketch are below.
Title: Robust Portfolio Optimization with Options
Author: Aurélie Thiele
Location: Nedderman Hall (NH) Room 105
Date: Monday, September 24
Time: 1:15pm – 2:15pm
Abstract: We consider the problem of maximizing the worst-case return of a portfolio when the manager can invest in stocks as well as European options on those stocks, and the stock returns are modeled using an uncertainty-set approach, with a range forecast for each factor driving the returns and a budget of uncertainty limiting the deviations of these factors from their nominal values. While options and robust optimization have gained acceptance from the finance community and the optimization community, respectively, to mitigate the high levels of uncertainty that managers face, little attention has been spent on considering them jointly due to the computational difficulties that arise from the problem structure. We present theoretical results regarding the structure of the optimal allocation, in particular with respect to diversification, and analyze how the optimal allocation varies with increasing values of the budget of uncertainty. Our results provide insights into how the manager chooses to protect his portfolio against uncertainty based on the characteristics of the options (retail prices and strike prices), specifically, which uncertainty protection he is willing to purchase at which price. We document the performance of our approach in numerical results that compare our robust portfolio allocation to several benchmarks, showing that our approach performs very well in practice.
Joint work with Hedieh Ashrafi of Southern Methodist University.
Biographical sketch: Aurélie Thiele is an Associate Professor in the Engineering Management, Information and Systems department at Southern Methodist University in Dallas, TX. Prior to that, she spent twelve years as an Assistant Professor and tenured Associate Professor at Lehigh University in Bethlehem, PA in the department of Industrial and Systems Engineering, where she served as co-director of the Master of Science program in Analytical Finance. She holds a MS and PhD in Electrical Engineering and Computer Science from MIT and a “diplome d’ingénieur” from the Ecole des Mines de Paris in Paris, France. Her research on decision-making under high uncertainty and robust prescriptive analytics has received the George E. Nicholson prize, the IBM Faculty Award, the Lehigh Faculty Innovation Grant and multiple National Science Foundation grants, among others.