INVESTMENT OPTIMIZATION

SYST 798/OR 680Capstone Project ProposalLee VorthmanIsaac Rusangiza Kindle Fell Erik Adamson

SOLUTIONSMM

• Investment Optimization▫Problem: There is currently no known mathematical

model used for selling future stock options – presently accomplished with vast market experience and general “feel” for futures behavior

▫Goal: Determine a method/strategy for optimizing investment return with index future options A way to theoretically achieve a reasonably high probability

of making money from an investment through sales of both calls and puts Put – As the seller, betting an option will increase/stay the same Call – As the seller, betting an option will decrease/stay the same

Limited to S&P 500 index future options

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•Suggested Methods/Strategies▫Short Straddle Option Strategy▫Black-Scholes Model – market data▫Arbitrage Pricing Theory

•Characteristics to consider▫What price above and below strike

price to offset gains and losses▫When to sell

Sit and wait versus dynamically buying and selling in response to market activity

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•Planned Approach▫Propose a solution Model

▫Simulation Using common programming

language or software (MatLab, Arena, Java, Analytica)

Find appropriate data or data model

▫Continue using Spiral Development Refine Model and repeat

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•Planned Deliverables▫CONOPS

Problem Statement Market Analysis/research Scope Stakeholder Analysis Top level requirements

▫Schedule (Gantt Chart)▫Business Case/Justification▫Simulation Model▫Process Model/Description

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•Next Steps▫Project approval▫Determine high-level requirements and constraints

to judge any method or model being considered Further research on futures investment Continued interaction with primary stakeholder /

sponsor (Prof. Chang) Definition of Success (ROI, Risk vs. Return) Find appropriate set of data for modeling purposes

▫Simulation and Test Plan Further research on suggested strategy while

searching for possible alternatives

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Questions?

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