Designing minimum guaranteed return funds

M. A. H. Dempster, M. Germano, E. A. Medova, M. I. Rietbergen, F. Sandrini and M. Scrowston

Quantitative Finance, 2007, vol. 7, issue 2, 245-256

Abstract: In recent years there has been a significant growth of investment products aimed at attracting investors who are worried about the downside potential of the financial markets. This paper introduces a dynamic stochastic optimization model for the design of such products. The pricing of minimum guarantees as well as the valuation of a portfolio of bonds based on a three-factor term structure model are described in detail. This allows us to accurately price individual bonds, including the zero-coupon bonds used to provide risk management, rather than having to rely on a generalized bond index model.

Keywords: Dynamic stochastic programming; Asset & liability management; Guaranteed returns; Yield curve; Economic factor model (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (10)

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DOI: 10.1080/14697680701264804

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