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A Guaranteed-Return Structured Product as an Investment Risk-Hedging Instrument in Pension Savings Plans

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  • Zvika Afik

    (Department of Business Administration, Guilford Glazer Faculty of Business and Management, Ben-Gurion University of the Negev, Beer-Sheva 8443944, Israel
    Israel and Hadassah Academic College, Jerusalem 9101001, Israel)

  • Elroi Hadad

    (Department of Industrial Engineering and Management, Sami Shamoon College of Engineering, Beer-Sheva 8410802, Israel)

  • Rami Yosef

    (Department of Business Administration, Guilford Glazer Faculty of Business and Management, Ben-Gurion University of the Negev, Beer-Sheva 8443944, Israel)

Abstract

This study proposes a structured product (SP) for hedging defined contribution pension fund members against capital market risk. Using Monte Carlo simulations on three different guaranteed returns to test the investment strategy of the SP against a balanced investment portfolio, we measure their performance across a wide variety of capital market returns and risk scenarios. The results show that the SP guarantees a minimal return on the pension savings portfolio and offers a higher portfolio return at a lower investment risk, compared with the balanced investment portfolio. We conclude that the SP may become popular among pension fund members, potentially leading to improved risk management, greater competition, and investment strategy innovations for defined contribution pension schemes.

Suggested Citation

  • Zvika Afik & Elroi Hadad & Rami Yosef, 2023. "A Guaranteed-Return Structured Product as an Investment Risk-Hedging Instrument in Pension Savings Plans," Risks, MDPI, vol. 11(6), pages 1-16, June.
    • Handle: RePEc:gam:jrisks:v:11:y:2023:i:6:p:107-:d:1164262
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    References listed on IDEAS

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