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.

Optimal investment strategies with a minimum performance constraint

Barucci E.;Marazzina D.;
2021-01-01

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.
2021
Asset management; Management fee; Martingale approach; Minimum guarantee; Performance fee
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11311/1120579
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