A study of robust portfolio optimization with European options using polyhedral uncertainty sets

We consider the problem of maximizing worst-case return a portfolio when manager can invest in stocks as well European options on those stocks, and stock returns are modeled using an uncertainty set approach. Specifically, knows range forecast for each factor driving budget limiting scaled deviations these factors from their nominal values. Our goal is to understand impact optimal allocation. present theoretical results regarding structure that allocation, particular with respect diversification. we show presence only leads limited diversification across financial instruments available. compare our robust several benchmarks numerical experiments analyze how allocation varies uncertainty. indicate approach performs very practice.