Analysis of Defined Outcome Investing Algorithm

A few years ago, a new investment approach came to market—Defined Outcome Investing (DOI). DOI often promises the delivery of the upside performance of an equity asset to a certain level, with a defined downside protection amount, over a pre-established period. The first DOI ETF was just introduced in late 2018. In the following few years, DOI has become one of the most popular financial products in the market. According to Innovator, the DOI ETFs AUM (Asset Under Management) has rapidly grown to $1.7 billion in one year and nearly $4 billion in 2 years. However, the DOI strategy can be easily replicated by synthetic option product combinations. Our research team is working with a corporate partner to analyze an optimization algorithm to construct an optimized option product portfolio as a synthetic DOI strategy with better performance and greater transparency. As a result, we plan to publish a white paper to describe this methodology and model.

Supervisors: Runhuan Feng, Industry corporate partner from a Financial Technology Company

Graduate Supervisor: Yulong Wu