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I’m working on a model which creates a portfolio of options. The model has an alpha from an options trade for 1 period using several different underlying stocks. Would Mean Variance optimization still apply in this situation?

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  • $\begingroup$ Does mean variance ever apply? Nassim Taleb for example argues that the theory is, in practice, worthless. $\endgroup$
    – AKdemy
    Oct 10 at 2:56
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    $\begingroup$ Even if the underlying is multivariate normally distributed, the options will introduce a lot of higher moments (skewness and kurtosis), rendering MVO useless in most scenarios. $\endgroup$ Oct 10 at 4:03
  • $\begingroup$ Given this, can these higher moments be accounted for in the optimization? $\endgroup$ Oct 10 at 14:59

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