The Optimum Portfolio Model With Derivatives

In this paper, we introduce the derivatives—option in the securities investment portfolios and use the characteristic of hedging of derivatives, which can keep away the market risk and enable the investor obtain the max income under risk level which can be accepted.First, we introduce the theory of VaR risk measuring technology. That elaborates VaR background, basic concept, the merit and shortcoming and main calculating method. VaR (Value at Risk) is"the risk at the value", refers to under certain probability level (confidence), some financial property or portfolios will be most greatly possible in future specific period of time to lose. Its main computational method has three kinds: The first kind is the general method, most is typical is under normal distribution VaR. This is the very computational method which this article uses; Moreover two kinds respectively are the history simulation method and Monte Carlo simulation method.Then we introduce elementary knowledge of derivatives: the classification, the yield, the Black-Scholes formula, the hedging theory. Derivative is one kind of financial tool; its value relies on other more basic securities. Most common derivatives include: Forward contract, futures, options and so on. Derivatives have the characteristic of hedging: using the finance the cash to flush the on-hand merchandise cash to avoid or reduce the risk. It can be divided into two kinds. One kind is the traditional concept, the other is about investment: using options, carries on the combination investment to the stock market and the futures market property. The goal lies in: gain the biggest profit under the risk condition decided or reduce the risk of lose under decided income. This paper is using the latter one.Finally we generalize the rationale of portfolios insurance of options, discussing the portfolio about m hands of stock and n shares of fall option. The portfolios insurance is formed by one hand of a certain stock and one share of its fall option. Using this kind of investment portfolios, may guarantee on exercise day no matter the stock price falls to what kind of degree, its investment cash flows is all of the exercise price. Performing this kind of theory to promote, we joins the transaction expense, no sell short, integer restraint and so on the actual limit to establish the investment portfolios model including derivatives, measuring the risk with VaR, and using the real data. We can prove that it's pretty good to introduce derivatives to the portfolios to reduce risk. We invest only less funds to be allowed to dodge the risk, moreover it's eaay for investors to carry on the computation and the operation.