Time-invariant portfolio strategies in structured products with guaranteed minimum equity exposure |
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Authors: | Luca Di Persio D Mancinelli Immacolata Oliva K Wallbaum |
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Institution: | 1. Department of Computer Science, University of Verona, Verona, Italy;2. Department of Methods and Models for Territory, Economics and Finance, Sapienza University of Rome, Rome, Italy;3. Allianz Global Investors GmbH, Munich, Germany |
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Abstract: | We introduce a new exotic option to be used within structured products to address a key disadvantage of standard time-invariant portfolio protection: the well-known cash-lock risk. Our approach suggests enriching the framework by including a threshold in the allocation mechanism so that a guaranteed minimum equity exposure (GMEE) is ensured at any point in time. To be able to offer such a solution still with hard capital protection, we apply an option-based structure with a dynamic allocation logic as underlying. We provide an in-depth analysis of the prices of such new exotic options, assuming a Heston–Vasicek-type financial market model, and compare our results with other options used within structured products. Our approach represents an interesting alternative for investors aiming at downsizing protection via time-invariant portfolio protection strategies, meanwhile being also afraid to experience a cash-lock event triggered by market turmoils. |
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Keywords: | guaranteed minimum equity exposure portfolio insurance strategies stochastic volatility structured products time-invariant portfolio protection |
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