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Tracking error with minimum guarantee constraints

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Mathematical and Statistical Methods for Actuarial Sciences and Finance

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Abstract

In recent years the popularity of indexing has greatly increased in financial markets and many different families of products have been introduced. Often these products also have a minimum guarantee in the form of a minimum rate of return at specified dates or a minimum level of wealth at the end of the horizon. Periods of declining stock market returns together with low interest rate levels on Treasury bonds make it more difficult to meet these liabilities. We formulate a dynamic asset allocation problem which takes into account the conflicting objectives of a minimum guaranteed return and of an upside capture of the risky asset returns. To combine these goals we formulate a double tracking error problem using asymmetric tracking error measures in the multistage stochastic programming framework.

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Authors and Affiliations

  1. Department of Applied Mathematics, University Ca’ Foscari Venice, Venice, Italy

    Diana Barro & Elio Canestrelli

Authors
  1. Diana Barro
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  2. Elio Canestrelli
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Editors and Affiliations

  1. Department of Applied Mathematics, University Ca’ Foscari Venice, Venice, Italy

    Marco Corazza

  2. Department of Statistics, University Ca’ Foscari Venice, Venice, Italy

    Claudio Pizzi

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Barro, D., Canestrelli, E. (2010). Tracking error with minimum guarantee constraints. In: Corazza, M., Pizzi, C. (eds) Mathematical and Statistical Methods for Actuarial Sciences and Finance. Springer, Milano. https://doi.org/10.1007/978-88-470-1481-7_2

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