Designing Minimum Guaranteed Return Funds

Michael A.H. Dempster (), Matteo Germano (), Elena A. Medova (), Muriel I. Rietbergen (), Francesco Sandrini () and Mike Scrowston ()
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Michael A.H. Dempster: University of Cambridge
Matteo Germano: Pioneer Investment Management Ltd.
Elena A. Medova: Iberdrola
Muriel I. Rietbergen: Securitisation & Asset Monetisation Group, Morgan Stanley
Francesco Sandrini: University of Calabria
Mike Scrowston: Pioneer Investment Management Ltd.

A chapter in Stochastic Optimization Methods in Finance and Energy, 2011, pp 21-42 from Springer

Abstract: 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 and Liability Management; Guaranteed Returns; Yield Curve; Economic Factor Model (search for similar items in EconPapers)
Date: 2011
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DOI: 10.1007/978-1-4419-9586-5_2

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