We introduce a new exotic option to be used within structured products to address a key disadvantage of standard time-invariant portfolio protection: the well-known cash-lock risk. Our approach suggests enriching the framework by including a threshold in the allocation mechanism so that a guaranteed minimum equity exposure (GMEE) is ensured at any point in time. To be able to offer such a solution still with hard capital protection, we apply an option-based structure with a dynamic allocation logic as underlying. We provide an in-depth analysis of the prices of such new exotic options, assuming a Heston-Vasicek-type financial market model, and compare our results with other options used within structured products. Our approach represents an interesting alternative for investors aiming at downsizing protection via time-invariant portfolio protection strategies, meanwhile being also afraid to experience a cash-lock event triggered by market turmoils.
Time‐invariant portfolio strategies in structured products with guaranteed minimum equity exposure
Luca Di Persio;Immacolata Oliva;
2023-01-01
Abstract
We introduce a new exotic option to be used within structured products to address a key disadvantage of standard time-invariant portfolio protection: the well-known cash-lock risk. Our approach suggests enriching the framework by including a threshold in the allocation mechanism so that a guaranteed minimum equity exposure (GMEE) is ensured at any point in time. To be able to offer such a solution still with hard capital protection, we apply an option-based structure with a dynamic allocation logic as underlying. We provide an in-depth analysis of the prices of such new exotic options, assuming a Heston-Vasicek-type financial market model, and compare our results with other options used within structured products. Our approach represents an interesting alternative for investors aiming at downsizing protection via time-invariant portfolio protection strategies, meanwhile being also afraid to experience a cash-lock event triggered by market turmoils.File | Dimensione | Formato | |
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Appl Stoch Models Bus Ind - 2023 - Di Persio - Time‐invariant portfolio strategies in structured products with guaranteed.pdf
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