Optimal Portfolios With Guarantee At Maturity
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Author | : Jean-Luc Prigent |
Publisher | : |
Total Pages | : 15 |
Release | : 2006 |
Genre | : |
ISBN | : |
Portfolio insurance allows investors to recover, at maturity, a given percentage of their initial capital. This limits downside risk in falling markets. Besides, it allows some participation in rising markets. One of the standard portfolio insurance methods is the Constant Proportion Portfolio Insurance (CPPI). We analyse options on cushion associated to CPPI. This kind of Power options corresponds in particular to the solution of a portfolio optimization problem in which an additional guarantee constraint must be satisfied at maturity. We also compare this strategy with the standard OBPI method.
Author | : Jean-Luc Prigent |
Publisher | : CRC Press |
Total Pages | : 451 |
Release | : 2007-05-07 |
Genre | : Business & Economics |
ISBN | : 142001093X |
In answer to the intense development of new financial products and the increasing complexity of portfolio management theory, Portfolio Optimization and Performance Analysis offers a solid grounding in modern portfolio theory. The book presents both standard and novel results on the axiomatics of the individual choice in an uncertain framework, cont
Author | : Richard O. Michaud |
Publisher | : Oxford University Press |
Total Pages | : 207 |
Release | : 2008-03-03 |
Genre | : Business & Economics |
ISBN | : 0199887195 |
In spite of theoretical benefits, Markowitz mean-variance (MV) optimized portfolios often fail to meet practical investment goals of marketability, usability, and performance, prompting many investors to seek simpler alternatives. Financial experts Richard and Robert Michaud demonstrate that the limitations of MV optimization are not the result of conceptual flaws in Markowitz theory but unrealistic representation of investment information. What is missing is a realistic treatment of estimation error in the optimization and rebalancing process. The text provides a non-technical review of classical Markowitz optimization and traditional objections. The authors demonstrate that in practice the single most important limitation of MV optimization is oversensitivity to estimation error. Portfolio optimization requires a modern statistical perspective. Efficient Asset Management, Second Edition uses Monte Carlo resampling to address information uncertainty and define Resampled Efficiency (RE) technology. RE optimized portfolios represent a new definition of portfolio optimality that is more investment intuitive, robust, and provably investment effective. RE rebalancing provides the first rigorous portfolio trading, monitoring, and asset importance rules, avoiding widespread ad hoc methods in current practice. The Second Edition resolves several open issues and misunderstandings that have emerged since the original edition. The new edition includes new proofs of effectiveness, substantial revisions of statistical estimation, extensive discussion of long-short optimization, and new tools for dealing with estimation error in applications and enhancing computational efficiency. RE optimization is shown to be a Bayesian-based generalization and enhancement of Markowitz's solution. RE technology corrects many current practices that may adversely impact the investment value of trillions of dollars under current asset management. RE optimization technology may also be useful in other financial optimizations and more generally in multivariate estimation contexts of information uncertainty with Bayesian linear constraints. Michaud and Michaud's new book includes numerous additional proposals to enhance investment value including Stein and Bayesian methods for improved input estimation, the use of portfolio priors, and an economic perspective for asset-liability optimization. Applications include investment policy, asset allocation, and equity portfolio optimization. A simple global asset allocation problem illustrates portfolio optimization techniques. A final chapter includes practical advice for avoiding simple portfolio design errors. With its important implications for investment practice, Efficient Asset Management 's highly intuitive yet rigorous approach to defining optimal portfolios will appeal to investment management executives, consultants, brokers, and anyone seeking to stay abreast of current investment technology. Through practical examples and illustrations, Michaud and Michaud update the practice of optimization for modern investment management.
Author | : Van Son Lai |
Publisher | : |
Total Pages | : 30 |
Release | : 2008 |
Genre | : |
ISBN | : 9782895243182 |
This paper studies the effects of maturity, assets? risks and time-varying correlations on pricing portfolios of financial guarantees. In the spirit of Froot and Stein (1998), Merton and Perold (1993) and the practice of capital at risk, we analyze the inter-temporal risk management practice of a risk averse guarantor. Since it has been long recognized in the credit risk literature that correlations change with economic cycles, we analyse explicitly these phenomenon by means of a one factor Gaussian copula stochastic correlation model. To achieve our objective, we propose an extended contingent claims analysis model that incorporates (i) bankruptcy occurrence induced by a barrier à la Black and Cox (1976); (ii) the pricing of the guarantee takes into account the unexpected losses; and (iii) the insurer is averse to risk with disutility proportional to the square of the unexpected losses. Our simulations results show that constant correlations lead to undervaluation of the guarantee contract since it understates the losses, which can affect the insuring capacity of the insurer, especially for longer maturity debts. We also show how depending on the loans maturity, the portfolio unexpected loss does not necessarily increase with the assets risk. Moreover, the utility of the guarantor indicates the existence of an optimal average maturity for the loans composing the portfolio.
Author | : Edwin J. Elton |
Publisher | : John Wiley & Sons |
Total Pages | : 754 |
Release | : 2014-01-21 |
Genre | : Business & Economics |
ISBN | : 1118469941 |
Modern Portfolio Theory and Investment Analysis, 9th Editionexamines the characteristics and analysis of individual securities, as well as the theory and practice of optimally combining securities into portfolios. It stresses the economic intuition behind the subject matter while presenting advanced concepts of investment analysis and portfolio management. The authors present material that captures the state of modern portfolio analysis, general equilibrium theory, and investment analysis in an accessible and intuitive manner.
Author | : Ralf Korn |
Publisher | : World Scientific |
Total Pages | : 352 |
Release | : 1997 |
Genre | : Business & Economics |
ISBN | : 9810232152 |
The focus of the book is the construction of optimal investment strategies in a security market model where the prices follow diffusion processes. It begins by presenting the complete Black-Scholes type model and then moves on to incomplete models and models including constraints and transaction costs. The models and methods presented will include the stochastic control method of Merton, the martingale method of Cox-Huang and Karatzas et al., the log optimal method of Cover and Jamshidian, the value-preserving model of Hellwig etc. Stress is laid on rigorous mathematical presentation and clear economic interpretations while technicalities are kept to the minimum. The underlying mathematical concepts will be provided. No a priori knowledge of stochastic calculus, stochastic control or partial differential equations is necessary (however some knowledge in stochastics and calculus is needed).
Author | : Rdiger Kiesel |
Publisher | : World Scientific |
Total Pages | : 414 |
Release | : 2010 |
Genre | : Business & Economics |
ISBN | : 9814280100 |
This book combines academic research and practical expertise on alternative assets and trading strategies in a unique way. The asset classes that are discussed include: credit risk, cross-asset derivatives, energy, private equity, freight agreements, alternative real assets (ARA), and socially responsible investments (SRI). The coverage on trading and investment strategies are directed at portfolio insurance, especially constant proportion portfolio insurance (CPPI) and constant proportion debt obligation (CPDO) strategies, robust portfolio optimization, and hedging strategies for exotic options.
Author | : Holger Kraft |
Publisher | : Springer Science & Business Media |
Total Pages | : 178 |
Release | : 2012-08-27 |
Genre | : Business & Economics |
ISBN | : 3642170412 |
This thesis summarizes most of my recent research in the field of portfolio optimization. The main topics which I have addressed are portfolio problems with stochastic interest rates and portfolio problems with defaultable assets. The starting point for my research was the paper "A stochastic control ap proach to portfolio problems with stochastic interest rates" (jointly with Ralf Korn), in which we solved portfolio problems given a Vasicek term structure of the short rate. Having considered the Vasicek model, it was obvious that I should analyze portfolio problems where the interest rate dynamics are gov erned by other common short rate models. The relevant results are presented in Chapter 2. The second main issue concerns portfolio problems with default able assets modeled in a firm value framework. Since the assets of a firm then correspond to contingent claims on firm value, I searched for a way to easily deal with such claims in portfolio problems. For this reason, I developed the elasticity approach to portfolio optimization which is presented in Chapter 3. However, this way of tackling portfolio problems is not restricted to portfolio problems with default able assets only, but it provides a general framework allowing for a compact formulation of portfolio problems even if interest rates are stochastic.
Author | : Siddhartha Pratim Chakrabarty |
Publisher | : Springer Nature |
Total Pages | : 158 |
Release | : 2023-02-18 |
Genre | : Mathematics |
ISBN | : 9811985448 |
Designed as a self-contained text, this book covers a wide spectrum of topics on portfolio theory. It covers both the classical-mean-variance portfolio theory as well as non-mean-variance portfolio theory. The book covers topics such as optimal portfolio strategies, bond portfolio optimization and risk management of portfolios. In order to ensure that the book is self-contained and not dependent on any pre-requisites, the book includes three chapters on basics of financial markets, probability theory and asset pricing models, which have resulted in a holistic narrative of the topic. Retaining the spirit of the classical works of stalwarts like Markowitz, Black, Sharpe, etc., this book includes various other aspects of portfolio theory, such as discrete and continuous time optimal portfolios, bond portfolios and risk management. The increase in volume and diversity of banking activities has resulted in a concurrent enhanced importance of portfolio theory, both in terms of management perspective (including risk management) and the resulting mathematical sophistication required. Most books on portfolio theory are written either from the management perspective, or are aimed at advanced graduate students and academicians. This book bridges the gap between these two levels of learning. With many useful solved examples and exercises with solutions as well as a rigorous mathematical approach of portfolio theory, the book is useful to undergraduate students of mathematical finance, business and financial management.
Author | : Rudiger Kiesel |
Publisher | : World Scientific |
Total Pages | : 414 |
Release | : 2010-06-18 |
Genre | : Business & Economics |
ISBN | : 9814467332 |
This book combines academic research and practical expertise on alternative assets and trading strategies in a unique way. The asset classes that are discussed include: credit risk, cross-asset derivatives, energy, private equity, freight agreements, alternative real assets (ARA), and socially responsible investments (SRI). The coverage on trading and investment strategies are directed at portfolio insurance, especially constant proportion portfolio insurance (CPPI) and constant proportion debt obligation (CPDO) strategies, robust portfolio optimization, and hedging strategies for exotic options.