INVESTMENT OPTIMIZATION

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# INVESTMENT OPTIMIZATION - PowerPoint PPT Presentation

SOLUTIONS. M. M. INVESTMENT OPTIMIZATION. SYST 798/OR 680 Capstone Project Proposal Lee Vorthman Isaac Rusangiza Kindle Fell Erik Adamson. M. M. Project Proposal. Investment Optimization

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SOLUTIONS

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### INVESTMENT OPTIMIZATION

SYST 798/OR 680

Capstone Project Proposal

Lee Vorthman

Isaac Rusangiza

Kindle Fell

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Project Proposal
• 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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Project Proposal
• 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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Project Proposal
• 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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Project Proposal
• Planned Deliverables
• CONOPS
• Problem Statement
• Market Analysis/research
• Scope
• Stakeholder Analysis
• Top level requirements
• Schedule (Gantt Chart)
• Simulation Model
• Process Model/Description

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Project Proposal
• 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