Portfolio Selection Model with Derivative Securities

摘要

Traditional portfolio theory assumes that the return rate of portfolio follows normality. However, this assumption is not true when derivative assets are incorporated. In this paper a portfolio selection model is developed based on utility function which can capture asymmetries in random variable distributions. Other realistic conditions are also considered, such as liabilities and integer decision variables. Since the resulting model is a complex mixed-integer nonlinear programming problem, simulated annealing algorithm is applied for its solution. A numerical example is given and sensitivity analysis is conducted for the model.