Author/Authors :
Bahiraie, Alireza Department of Mathematics - Faculty of Mathematics - Statistics and Computer Science - Semnan University, Semnan , Abbasi, Behzad Department of Mathematics - Faculty of Mathematics - Statistics and Computer Science - Semnan University, Semnan , Omidi, Farahnaz Department of Mathematics - Faculty of Mathematics - Statistics and Computer Science - Semnan University, Semnan , Hamzah, Nor Aishah Faculty of Science - University of Malaya - Kuala Lumpur, Malaysia , Hadi Yaakub, Abdul Faculty of Science - University of Malaya - Kuala Lumpur, Malaysia
Abstract :
This paper presents dynamic portfolio model based on the Merton's optimal investment-consumption
model, which combines dynamic synthetic put option using risk-free and risky assets. This paper is
extended version of methodological paper published by Yuan Yao in 2012. Because of the long history
of the development of foreign nancial market, with a variety of nancial derivatives, the study on
theory or empirical analysis of portfolio insurance focused on how best can portfolio strategies be used
in minimizing risk and market volatility. In this paper, stock and risk-free assets are used to replicate
options and to establish a new dynamic model to analyze the implementation of the dynamic process
of investors' actions using dynamic replication strategy. Our results show that investors' optimal
strategies of portfolio are not dependent on their wealth, but are dependent on market risk and this
new methodology is broaden in compare to paper of Yuan Yao (2012).
