A Dynamic Inflation Hedging Trading Strategy Using a CPPI

Fulli-Lemaire, Nicolas

doi:10.2139/ssrn.2033166

SSRN Journal

2012

DOI: 10.2139/ssrn.2033166

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A Dynamic Inflation Hedging Trading Strategy Using a CPPI

Nicolas Fulli-Lemaire¹

Abstract: This article tries to solve the portfolio inflation hedging problem by introducing a new class of dynamic trading strategies derived from classic portfolio insurance techniques adapted to the real world. These strategies aim at yielding higher returns on a riskadjusted basis than regular inflation hedging portfolio allocation while achieving a lower cost than comparable option-based guaranteed real value strategies.

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2014

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The Impact of Inflation Risk on Financial Planning and Risk-Return Profiles

Graf

Haertel²,

Kling³

et al. 2014

ASTIN Bull.

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The importance of funded private or occupational old-age provision is expected to increase due to demographic changes and the resulting problems for government-run pay-as-you-go systems. Clients and advisors therefore need reliable methodologies to match offered products with clients' needs and risk appetite. In Graf et al. (2012), the authors have introduced a methodology based on stochastic modeling to properly assess the risk-return profiles -i.e. the probability distribution of future benefits -of various old-age provision products. In this paper, we additionally consider the impact of inflation on the risk-return profile of old-age provision products. In a model with stochastic interest rates, stochastic inflation and equity returns including stochastic equity volatility, we derive risk-return-profiles for various types of existing unit-linked products with and without embedded guarantees and especially focus on the difference between nominal and real returns. We find that typical "rule of thumb" approximations for considering inflation risk are inappropriate and further show that products that are considered particularly safe by practitioners because of nominal guarantees may bear significant inflation risk. Finally, we propose product designs suitable to reduce inflation risk and investigate their risk-return profile in real terms.

show abstract

The Impact of Inflation Risk on Financial Planning and Risk-Return Profiles

Graf

Haertel²,

Kling³

et al. 2014

ASTIN Bull.

View full text Add to dashboard Cite

show abstract

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A Dynamic Inflation Hedging Trading Strategy Using a CPPI

Cited by 1 publication

References 16 publications

The Impact of Inflation Risk on Financial Planning and Risk-Return Profiles

The Impact of Inflation Risk on Financial Planning and Risk-Return Profiles

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