Options and structured products in behavioral portfolios

Options and structured products have no roles in mean-variance portfolios, but they have roles in behavioral portfolios. Behavioral portfolios are composed of mental account sub-portfolios, each associated with a goal, such as retirement income or bequest. Investors optimize each mental account by finding the assets and asset allocation that maximizes the expected return of each mental account sub-portfolio subject to the condition that the probability of failing to reach a preset threshold aspiration level not exceed a preset probability. Put options are useful in 'downside protection' mental accounts whose goal is avoiding poverty, whereas call options are useful in 'upside potential' mental accounts whose goal is a shot at riches. We also explore the roles in behavioral portfolios of option collars, capital guaranteed notes, and barrier range notes.