How Good Are Portfolio Insurance Strategies?

Balder, Sven; Mahayni, Antje

doi:10.1142/9789814280112_0010

Cited by 14 publications

(14 citation statements)

References 44 publications

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“…The basic portfolio optimization model goes back to Merton (1971). As for the formulation in terms of the martingale method, the details are worked out in, e.g., Brennan and Torous (1999), Jensen and Sørensen (2001) and Balder and Mahayni (2010). We adopt the notation from the latter.…”

Section: Pareto Optimal Sharing Rules: Two Investorsmentioning

confidence: 99%

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How suboptimal are linear sharing rules?

Jensen

Nielsen

2016

Ann Finance

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The objective of this paper is to analyze criteria for portfolio choice when two investors are forced to invest in a common portfolio and share the proceeds by a linear sharing rule. A similar situation with many investors is typical for defined contribution pension schemes. The restriction implies two sources of suboptimal investment decisions as seen from each of the two investors individually. One is the suboptimal choice of portfolio, the other is the forced linear sharing rule. We measure the combined consequence for each investor by their respective loss in wealth equivalent. We show that significant losses can arise when investors are diverse in their risk attitude. We also show that an investor with a low degree of risk aversion, like the logarithmic or the square root investor, often applied in portfolio choice models, can either inflict or be subject to severe losses when being forced to participate in such a common investment pool.

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Section: Pareto Optimal Sharing Rules: Two Investorsmentioning

confidence: 99%

“…For completeness we derive this result independently in Appendix 1. For an alternative approach using loss rates, seeBalder and Mahayni (2010).…”

mentioning

confidence: 99%

How suboptimal are linear sharing rules?

Jensen

Nielsen

2016

Ann Finance

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“…7 The difference lies on the way the guarantee is managed, either through a constraint on the total value of the portfolio which leads to OBPI strategies, 8 or through 7. Optimality of portfolio insurance strategies has been obtained by various authors such as Leland (1980), Brennan and Solanki (1981), Benninga and Blume (1985), Black and Perold (1992), Grossman and Zhou (1993) and El Karoui et al (2005) (see also Balder and Mahayni (2010) and the references therein).…”

Section: Maximization Problem and Optimalitymentioning

confidence: 99%

A scenario-based description of optimal American capital guaranteed strategies

Attaoui¹,

Lacoste²

2014

Finance

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Distribution électronique Cairn.info pour Presses universitaires de Grenoble. © Presses universitaires de Grenoble. Tous droits réservés pour tous pays. La reproduction ou représentation de cet article, notamment par photocopie, n'est autorisée que dans les limites des conditions générales d'utilisation du site ou, le cas échéant, des conditions générales de la licence souscrite par votre établissement. Toute autre reproduction ou représentation, en tout ou partie, sous quelque forme et de quelque manière que ce soit, est interdite sauf accord préalable et écrit de l'éditeur, en dehors des cas prévus par la législation en vigueur en France. Il est précisé que son stockage dans une base de données est également interdit.

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“…In this article, we consider an optimal investment problem of a fund manager who invests on behalf of a collective of individuals requiring a minimum guaranteed payment in a stochastic volatility framework. In a utility maximization framework, it is common in the literature to assume that individuals implicitly satisfy their guarantee requirements by deriving utility only from the residual wealth exceeding the guarantee, 3 see, for example, Basak (2002), Balder and Mahayni (2010) and Zieling et al (2014). 4 Each of the individuals in the collective may demand a certain guarantee.…”

Section: Introductionmentioning

confidence: 99%

A collective investment problem in a stochastic volatility environment: The impact of sharing rules

Chen¹,

Nguyen

Rach³

2021

Ann Oper Res

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It is typical in collectively administered pension funds that employees delegate fund managers to invest their contributions. In addition, many pension funds still need to sustain guarantees (prescribed by law) in spite of the current low interest environment. In this paper, we consider an optimal collective investment problem for a pool of investors who (implicitly) demand minimum guarantees by deriving utility from the wealth exceeding their guarantees in two financial market settings, one with a stochastic and one with a constant volatility. We find that individual investors’ well-being will not be worsened through the collective investment in both financial markets, as individual optimal solutions are attainable if a financially fair state-dependent sharing rule is applied. When more prevailing sharing rules like linear rules are applied, this holds no longer. Furthermore, the degree of sub-optimality imposed by linear sharing rules is more pronounced in the stochastic volatility market than in the constant volatility market.

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How Good Are Portfolio Insurance Strategies?

Cited by 14 publications

References 44 publications

How suboptimal are linear sharing rules?

How suboptimal are linear sharing rules?

A scenario-based description of optimal American capital guaranteed strategies

A collective investment problem in a stochastic volatility environment: The impact of sharing rules

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