Sharpe Ratio and Return-VaR Ratio Maximization for Option Portfolios with Skew-Elliptical t Underlying Returns

2026/06/15 by Kyle Sung, Traian A. Pirvu · 1 voice
Economics, Econometrics and Finance · #q-fin.PM #q-fin.MF

paper · pdf

Abstract

We provide a formulation for optimal option portfolios under Sharpe Ratio maximization when the underlying returns follow a skew-elliptical t-distribution. This departs from the traditional normal returns setting in the context of Sharpe ratio maximization by allowing the modelling of heavy-tailed and skewed dynamics. The novelty of this paper and our main result is to provide explicit formulas for the portfolio weights when maximizing the Sharpe ratio and return-to-Value-at-Risk (VaR) ratio in the skew-elliptical setting. Numerical experiments reveal that the optimal portfolios for the two ratios are different.

Citations

• Optimal Option Portfolios for Skew-Elliptical t Returns
• Multivariate Unified Skew-t Distributions And Their Properties
• Stochastic representations and probabilistic characteristics of multivariate skew-elliptical distributions
• Stochastic production planning with regime switching
• Portfolio Optimization under Correlation Constraint
• Option Pricing with Heavy-Tailed Distributions of Logarithmic Returns
• Multi-period investment strategies under Cumulative Prospect Theory
• Risk management under Omega measure
• Risk minimization and portfolio diversification
• Student's t-Distribution Based Option Sensitivities: Greeks for the Gosset Formulae
• Statistical applications of the multivariate skew-normal distribution
• Pricing European options with a log Student’s t-distribution: A Gosset formula
• Distributions generated by perturbation of symmetry with emphasis on a multivariate skew t distribution

Discussions

• Kyle Sung, Traian A. Pirvu: Sharpe Ratio and Return-VaR Ratio Maximization for Option Portfolios with Skew-Elliptical $t$ Underlying Returns https://arxiv.org/abs/2606.17032 https://arxiv.org/pdf/2606 [bsky, 0 points, 0 comments]

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