Portfolio optimization in the illiquid market using the empirical distribution
This paper focuses on the portfolio optimization problem in the presence of the European options in the illiquid market. To do this, we extract the features of the market data using the statistical test to design a general financial model. After that, applying the dynamic replicating portfolio strat...
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| Format: | Article |
| Language: | English |
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Elsevier
2025-08-01
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| Series: | Results in Applied Mathematics |
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| Online Access: | http://www.sciencedirect.com/science/article/pii/S2590037425000755 |
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| author | Pouya Fakhraeipour Farshid Mehrdoust Alireza Najafi |
| author_facet | Pouya Fakhraeipour Farshid Mehrdoust Alireza Najafi |
| author_sort | Pouya Fakhraeipour |
| collection | DOAJ |
| description | This paper focuses on the portfolio optimization problem in the presence of the European options in the illiquid market. To do this, we extract the features of the market data using the statistical test to design a general financial model. After that, applying the dynamic replicating portfolio strategy, we derive a comprehensive partial integral differential equation for European option pricing in the illiquid market where the jump part of the model follows the empirical distribution. Since the structure of the equation is complex, we use the finite difference method to solve it. Furthermore, we apply the MCVaR portfolio optimization model with the short selling constraint to obtain the optimal portfolio strategy according to the risk tolerance amounts of the investors. Finally, we find the optimal portfolio under different amounts of the model’s parameters based on the S&P market data. |
| format | Article |
| id | doaj-art-ccd3c92a23ea4741a2b8d73b80fbdf6f |
| institution | Matheson Library |
| issn | 2590-0374 |
| language | English |
| publishDate | 2025-08-01 |
| publisher | Elsevier |
| record_format | Article |
| series | Results in Applied Mathematics |
| spelling | doaj-art-ccd3c92a23ea4741a2b8d73b80fbdf6f2025-06-29T04:52:48ZengElsevierResults in Applied Mathematics2590-03742025-08-0127100611Portfolio optimization in the illiquid market using the empirical distributionPouya Fakhraeipour0Farshid Mehrdoust1Alireza Najafi2Department of Applied Mathematics, Faculty of Mathematical Sciences University of Guilan, P. O. Box: 41938-1914, Rasht, IranDepartment of Applied Mathematics, Faculty of Mathematical Sciences University of Guilan, P. O. Box: 41938-1914, Rasht, IranCorresponding author.; Department of Applied Mathematics, Faculty of Mathematical Sciences University of Guilan, P. O. Box: 41938-1914, Rasht, IranThis paper focuses on the portfolio optimization problem in the presence of the European options in the illiquid market. To do this, we extract the features of the market data using the statistical test to design a general financial model. After that, applying the dynamic replicating portfolio strategy, we derive a comprehensive partial integral differential equation for European option pricing in the illiquid market where the jump part of the model follows the empirical distribution. Since the structure of the equation is complex, we use the finite difference method to solve it. Furthermore, we apply the MCVaR portfolio optimization model with the short selling constraint to obtain the optimal portfolio strategy according to the risk tolerance amounts of the investors. Finally, we find the optimal portfolio under different amounts of the model’s parameters based on the S&P market data.http://www.sciencedirect.com/science/article/pii/S2590037425000755Empirical distributionPortfolio optimizationParameter estimationFinancial modelLong memory property |
| spellingShingle | Pouya Fakhraeipour Farshid Mehrdoust Alireza Najafi Portfolio optimization in the illiquid market using the empirical distribution Results in Applied Mathematics Empirical distribution Portfolio optimization Parameter estimation Financial model Long memory property |
| title | Portfolio optimization in the illiquid market using the empirical distribution |
| title_full | Portfolio optimization in the illiquid market using the empirical distribution |
| title_fullStr | Portfolio optimization in the illiquid market using the empirical distribution |
| title_full_unstemmed | Portfolio optimization in the illiquid market using the empirical distribution |
| title_short | Portfolio optimization in the illiquid market using the empirical distribution |
| title_sort | portfolio optimization in the illiquid market using the empirical distribution |
| topic | Empirical distribution Portfolio optimization Parameter estimation Financial model Long memory property |
| url | http://www.sciencedirect.com/science/article/pii/S2590037425000755 |
| work_keys_str_mv | AT pouyafakhraeipour portfoliooptimizationintheilliquidmarketusingtheempiricaldistribution AT farshidmehrdoust portfoliooptimizationintheilliquidmarketusingtheempiricaldistribution AT alirezanajafi portfoliooptimizationintheilliquidmarketusingtheempiricaldistribution |