In this paper we examine the problem of managing portfolios consisting of both, stocks and options. Due to the resulting asymmetric portfolio return distribution we do not use mean variance analysis but represent the preferences of the investors in terms of confidence limits on downside risk measures. For the simultaneous optimization of the stock and option positions we derive portfolios with a maximum expected return under a given preference structure expressed by shortfall constraints. To identify the optimal optioned portfolio we derive an approximation of the return distribution. The solution identified by this procedure will dominate comparable portfolios derived by using mean variance analysis. On the basis of Monte Carlo simulations we illustrate our results and demonstrate the stochastic dominance of these solutions.     «

In this paper we examine the problem of managing portfolios consisting of both, stocks and options. Due to the resulting asymmetric portfolio return distribution we do not use mean variance analysis but represent the preferences of the investors in terms of confidence limits on downside risk measures. For the simultaneous optimization of the stock and option positions we derive portfolios with a maximum expected return under a given preference structure expressed by shortfall constraints. To ide...     »