Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5098815 | Journal of Economic Dynamics and Control | 2013 | 17 Pages |
Abstract
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.
Keywords
Related Topics
Physical Sciences and Engineering
Mathematics
Control and Optimization
Authors
Sanjiv R. Das, Meir Statman,