INVESTMENT OPTIMIZATION SYST 798/OR 680 Capstone Project Proposal Lee Vorthman Isaac Rusangiza Kindle Fell Erik Adamson SOLUTION S

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 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 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 Project Proposal

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

Questions? Project Proposal