Details
| Originalsprache | Englisch |
|---|---|
| Seiten (von - bis) | 85-111 |
| Seitenumfang | 27 |
| Fachzeitschrift | Review of derivatives research |
| Jahrgang | 19 |
| Ausgabenummer | 2 |
| Publikationsstatus | Veröffentlicht - 1 Juli 2016 |
| Extern publiziert | Ja |
Abstract
We study the merits of capped retirement products with guarantee for investors who have the flexibility to dynamically adjust their investment strategy. All contracts under consideration are fairly priced such that the net profit of the provider is zero. Without the rider, an expected utility maximizing CRRA investor does not want an investment cap. Here, she commits herself to a strategy a priori. With the flexibility rider, the optimization problem changes and the optimal strategy is a response to an exogenously set price. A fair pricing then anticipates the optimal response of the investor. We show that the maximum expected utility of the investor can, for anticipated fairly priced products, be obtained for a finite cap. Thus, a capped product design can give a Pareto improvement to the otherwise uncapped contract version.
ASJC Scopus Sachgebiete
- Volkswirtschaftslehre, Ökonometrie und Finanzen (insg.)
- Finanzwesen
- Volkswirtschaftslehre, Ökonometrie und Finanzen (insg.)
- Volkswirtschaftslehre, Ökonometrie und Finanzen (sonstige)
Zitieren
- Standard
- Harvard
- Apa
- Vancouver
- BibTex
- RIS
in: Review of derivatives research, Jahrgang 19, Nr. 2, 01.07.2016, S. 85-111.
Publikation: Beitrag in Fachzeitschrift › Artikel › Forschung › Peer-Review
}
TY - JOUR
T1 - Minimum return guarantees, investment caps, and investment flexibility
AU - Mahayni, Antje
AU - Schneider, Judith C.
N1 - Publisher Copyright: © 2015, Springer Science+Business Media New York.
PY - 2016/7/1
Y1 - 2016/7/1
N2 - We study the merits of capped retirement products with guarantee for investors who have the flexibility to dynamically adjust their investment strategy. All contracts under consideration are fairly priced such that the net profit of the provider is zero. Without the rider, an expected utility maximizing CRRA investor does not want an investment cap. Here, she commits herself to a strategy a priori. With the flexibility rider, the optimization problem changes and the optimal strategy is a response to an exogenously set price. A fair pricing then anticipates the optimal response of the investor. We show that the maximum expected utility of the investor can, for anticipated fairly priced products, be obtained for a finite cap. Thus, a capped product design can give a Pareto improvement to the otherwise uncapped contract version.
AB - We study the merits of capped retirement products with guarantee for investors who have the flexibility to dynamically adjust their investment strategy. All contracts under consideration are fairly priced such that the net profit of the provider is zero. Without the rider, an expected utility maximizing CRRA investor does not want an investment cap. Here, she commits herself to a strategy a priori. With the flexibility rider, the optimization problem changes and the optimal strategy is a response to an exogenously set price. A fair pricing then anticipates the optimal response of the investor. We show that the maximum expected utility of the investor can, for anticipated fairly priced products, be obtained for a finite cap. Thus, a capped product design can give a Pareto improvement to the otherwise uncapped contract version.
KW - Investment caps
KW - Investment flexibility
KW - Minimum return guarantees
KW - Pareto efficient contract design
UR - http://www.scopus.com/inward/record.url?scp=84946781476&partnerID=8YFLogxK
U2 - 10.1007/s11147-015-9116-5
DO - 10.1007/s11147-015-9116-5
M3 - Article
AN - SCOPUS:84946781476
VL - 19
SP - 85
EP - 111
JO - Review of derivatives research
JF - Review of derivatives research
SN - 1380-6645
IS - 2
ER -