Statistical Research And Application Of European Option Portfolio Strategy

With the continuous improvement of the operation and regulatory mechanism of the option market,people’s understanding of the economic function of options is becoming increasingly profound.Nowadays,options have become a diverse,powerful,and widely used risk management tool for different investors to choose and use.In risk management,the expected return curve connects users’ market predictions with the formulation of trading strategies.This paper mainly studies the construction of portfolio strategies for European options.First,based on the recurrent neural network(RNN)and the Trust region constraint penalty function algorithm,the prediction interval of the underlying price is constructed,so as to predict the market price trend.Then,according to the prediction results,the expected return curve is generated.Based on the expected return curve,the portfolio method is used to construct the strategy set.Finally,the extended Kelly criterion is used to determine the optimal portfolio in the portfolio strategy set.In the research of market price trend prediction,this paper designs a weight value to adjust the Error term,and constructs the prediction interval of the underlying price.The weight value is the global optimal value searched based on the Trust region constraint penalty function algorithm,with the prediction interval coverage probability(PICP)and the normalized root-mean-square width(PINRW)of the prediction interval as the optimization objectives.In order to determine the optimal combination in the combination strategy set,this paper conducts statistical research on option combination strategies using fund management methods in financial transactions,and designs an option trading strategy using the extended Kelly criterion.Although the price of options fluctuates greatly,the investment portfolio of options can lock in gains and losses in advance by making long or short trades at different strike prices,and then allocate fixed gains and losses based on the holding option investment portfolio.Applying the extended Kelly criterion to option trading,calculating the optimal bidding score and the Terminal Wealth Relative(TWR),can determine the optimal option portfolio strategy.This is a new trading method for position management options,which can provide decision-making basis for market traders.At the end of this paper,50 ETF options in European options are used for empirical research.Based on RNN model and Trust region constraint penalty function algorithm,the settlement price range of 50 ETF maturity date is predicted.After the expected return curve is established,the portfolio strategy set that meets the conditions is obtained by taking bull market spread and bear market spread as examples,and the optimal option portfolio strategy is obtained from the portfolio strategy set by combining the extended Kelly criteria,The numerical results validate the effectiveness of this method.