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Optimal Investment Strategy

Optimal Investment Strategy. Sponsor: Dr. K.C. Chang Tony Chen Ehsan Esmaeilzadeh Ali Jarvandi Ning Lin Ryan O’Neil. Background. Continuation of Fall 2009 Project Use real historical data on options prices instead of using Black-Scholes to estimate

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Optimal Investment Strategy

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  1. Optimal Investment Strategy Sponsor: Dr. K.C. Chang Tony Chen Ehsan Esmaeilzadeh Ali Jarvandi Ning Lin Ryan O’Neil

  2. Background • Continuation of Fall 2009 Project • Use real historical data on options prices instead of using Black-Scholes to estimate • Options – put/call, long/short, strike price, expiration date. • Stop loss • Sponsor: Dr. K.C. Chang

  3. Problem Statement The stock market is a growing segment of modern economies. On a daily basis millions of options are being traded for a value equivalent to several billions of dollars. However, there is also an added risk of losing a fortune. Some of the reasons investors do not maximize their return are either they are uninformed or fail to prevent catastrophic losses. The purpose of this analysis is to evaluate investment strategies with the goal of developing a model that will better reveal the ideal strategy (where, when, and how) to invest. This project will optimize strategies for trading S&P futures options only since it is the among largest and most liquid options market in the world. S&P futures options are reputed to have one of the highest rate of returns so the factors contribute to it being a logical option for this project.

  4. Project Scope • Time limited to 1997-2009 due to available data • Underlying asset is S&P 500 futures • Only analyze short strangle strategies • Strike prices ±$100 from asset price at increments of 10 • Stop loss from 5 to 45 at increments of 5

  5. Planned Approach • Literature search • Model options trading • Format data including interpolating missing data • Simulation using Java • Analyze outputs and refine simulation • Interface development

  6. Expected Results • Analytical Model – Application to run simulation and provide results • Software Application – GUI for user to input strategies and display equity curves • Policy Recommendations – Find optimal strategies to investor

  7. Work Breakdown Structure (WBS)

  8. Earned Value Management (EVM) • Expected cost based on the requirement from to the course syllabus • Factors in number of weeks, number of team members, and $40 per hour cost of labor. • Forecasted budget came to $32,000

  9. Project Schedule (GANTT)

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