The volatility target effect in structured investment products with capital protection

Albeverio, Sergio; Steblovskaya, Victoria; Wallbaum, Kai

doi:10.1007/s11147-017-9138-2

Cited by 11 publications

(20 citation statements)

References 16 publications

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“…• our numerical results for American derivatives with a VolTarget strategy as an underlying demonstrate similar trends as in our previous research on VolTarget-linked options of European type (see Albeverio et al, 2013;Albeverio et al, 2018).…”

Section: Summary Of the Numerical Experimentssupporting

confidence: 85%

“…In Albeverio et al (2013), the VolTarget mechanism is considered from an academic perspective for the first time both as an investment instrument and as an underlying asset for a European option embedded in an investment product with guarantee. Albeverio et al (2018) investigate an extension, which allows to choose the volatility target level depending on interest rate levels. Advantages and limitations of using a VolTarget strategy in such products are presented.…”

Section: Literature Reviewmentioning

confidence: 99%

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The volatility target effect in investment-linked products with embedded American-type derivatives

Albeverio

Steblovskaya

Wallbaum³

2019

Investment Management and Financial Innovations

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Volatility Target (VolTarget) strategies as underlying assets for options embedded in investment-linked products have been widely used by practitioners in recent years. Available research mainly focuses on European-type options linked to VolTarget strategies. In this paper, VolTarget-linked options of American type are investigated. Within the Heston stochastic volatility model, a numerical study of American put options, as well as American lookback options linked to VolTarget strategies, is performed. These are compared with traditional American-type derivatives linked to an equity index. The authors demonstrate that using a Volatility Target strategy as a basis for an embedded American-type derivative may make any protection fees significantly less dependent of changing market volatilities. Replacing an equity index with the VolTarget strategy may also result in reducing guarantee fees of the corresponding protection features in a highly volatile market environment.

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Section: Summary Of the Numerical Experimentssupporting

confidence: 85%

Section: Literature Reviewmentioning

confidence: 99%

The volatility target effect in investment-linked products with embedded American-type derivatives

Albeverio

Steblovskaya

Wallbaum³

2019

Investment Management and Financial Innovations

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“…The target volatility mechanism could represent another important dynamic pension investment strategy embedded with a risk control component (Albeverio et al 2013;Cirelli et al 2017). In contrast to the traditional lifecycle pension strategy, which follows a glide-path asset allocation concept, the target volatility mechanism adjusts pension portfolio allocation on the basis of pre-specified target volatility and realized market volatility (Albeverio et al 2018). In other words, the target volatility mechanism allows for a flexible portfolio asset adjustment between risky assets and risk-free assets, regardless of the pension target date.…”

Section: Literature Reviewmentioning

confidence: 99%

“…To date, studies have shown that different target-driven investment strategies, such as the target volatility mechanism, could provide effective capital protection under various volatile market conditions (Blake et al 2013;Albeverio et al 2018). In contrast to the lifecycle strategy, which consistently decreases the risky asset allocation over the pension accumulation phase, the target volatility strategy contains a dynamic risk management component that aims to adjust the asset allocation of a pension portfolio on a daily, monthly, or yearly basis.…”

Section: Target Volatility Strategymentioning

confidence: 99%

Optimizing Pension Outcomes Using Target‐Driven Investment Strategies: Evidence from Three Asian Countries with the Highest Old‐Age Dependency Ratio*

Bai

Wallbaum²

2020

Asia-Pac J of Fin Stud

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As a response to unforeseeable market turbulence—such as the 2008 financial crisis and the most recent market drawdown triggered by the COVID‐19 pandemic—we propose a new pension investment strategy that could better protect a long‐term pension plan in volatile market conditions. Over a hypothetical 20‐year pension scheme and various target volatility scenarios, we show that our newly proposed strategy, which attaches a target volatility mechanism to a lifecycle strategy, could provide more effective capital protection and risk control for pension investment vehicles. Our results are robust with a consideration of transaction costs.

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“…Therefore, implicitly, when investors trade certi¯cates, they are also trading many risk sources, see Guillaume (2015), Chang et al (2013), and Chen (2003). Many certi¯cates also include capital protection, and this can be exploited e®ectively in portfolio strategies, see Albeverio et al (2017). A comprehensive classi¯cation of certi¯cates, proposed by the European Structured Investment Products Association (EUSIPA), divides certi¯cates into four categories: capital-protected, yield enhancement, participation, and leverage products.…”

Section: Introductionmentioning

confidence: 99%

The Investment Certificates in the Italian Market: A Comparison of Quoted and Estimated Prices

Viganò

Vitali

Moriggia

et al. 2019

J. Fin. Mngt. Mar. Inst.

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Investment certificates are securitized derivatives built as a combination of financial instruments. The financial engineering process aims to create new payoff profiles that allow investors to diversify or to hedge the risk of their portfolios. Such instruments are relatively challenging to price, as highlighted in the recent publications for other European markets. The aim of this paper is to analyze whether in the Italian market there are also differences between the quoted price and the estimated price obtained applying a standard pricing approach well known in the literature. In particular, we analyze three representative certificates, belonging to the classes of target coupon certificates and autocallable certificates, that have been most appreciated by the investors during the last years. To evaluate the price, we propose a Monte Carlo approach that computes directly the payoff of the certificates on a set of scenarios for the evolution of the underlying asset. Moreover, studying the payoff profile of the certificates, we investigate and comment on the recent regulatory debate on “complexity”. We show that complexity, the new parameter behind return and risk, should not be necessarily associated with the engineering level of the financial products and that, sometimes, complexity is not associated with risk.

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The volatility target effect in structured investment products with capital protection

Cited by 11 publications

References 16 publications

The volatility target effect in investment-linked products with embedded American-type derivatives

The volatility target effect in investment-linked products with embedded American-type derivatives

Optimizing Pension Outcomes Using Target‐Driven Investment Strategies: Evidence from Three Asian Countries with the Highest Old‐Age Dependency Ratio*

The Investment Certificates in the Italian Market: A Comparison of Quoted and Estimated Prices

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