Optimal investment strategies with a minimum performance constraint

Emilio Barucci (), Daniele Marazzina () and Elisa Mastrogiacomo ()
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Emilio Barucci: Politecnico di Milano
Daniele Marazzina: Politecnico di Milano
Elisa Mastrogiacomo: Università degli Studi dell’Insubria

Annals of Operations Research, 2021, vol. 299, issue 1, No 11, 215-239

Abstract: Abstract We consider the optimal investment problem of a fund manager in the presence of a minimum guarantee constraint on the fund performance. The manager receives a fee which is proportional to the liquidation value of the portfolio or of the surplus over the guarantee in case it is positive and zero otherwise, eventually augmented by a constant fee. Her remuneration is reduced through the application of a penalty if the value of the fund at maturity is below a specified-in-advance threshold (minimum guarantee). We deal with two different settings: a continuous time economy with constant instantaneous interest rate and the case where the interest rate evolves as the Vasicek model. Explicit formulas for the optimal investment strategy are presented. We compare our portfolio strategies to the Merton portfolio and to the Option Based Portfolio Insurance strategy.

Keywords: Asset management; Minimum guarantee; Martingale approach; Management fee; Performance fee (search for similar items in EconPapers)
JEL-codes: C61 G11 G23 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (4)

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DOI: 10.1007/s10479-019-03348-2

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