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Relative Guarantees

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  • Snorre Lindset

Abstract

Many real-world financial contracts have some sort of minimum rate of return guarantee included. One class of these guarantees is so-called relative guarantees, i.e., guarantees where the minimum guaranteed rate of return is given as a function of the stochastic return on a reference portfolio. These guarantees are the topic of this paper. We analyse a wide range of different functional specifications for the minimum guaranteed rate of return, hereunder both so-called maturity and multi-period guarantees. Several closed form solutions are presented.

Suggested Citation

  • Snorre Lindset, 2004. "Relative Guarantees," The Geneva Papers on Risk and Insurance Theory, Springer;International Association for the Study of Insurance Economics (The Geneva Association), vol. 29(2), pages 187-209, December.
    • Handle: RePEc:kap:geneva:v:29:y:2004:i:2:p:187-209
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    Cited by:

    1. Yang, Sharon S. & Yueh, Meng-Lan & Tang, Chun-Hua, 2008. "Valuation of the interest rate guarantee embedded in defined contribution pension plans," Insurance: Mathematics and Economics, Elsevier, vol. 42(3), pages 920-934, June.
    2. Bahaji, Hamza, 2014. "Equity portfolio insurance against a benchmark: Setting, replication and optimality," Economic Modelling, Elsevier, vol. 40(C), pages 382-391.
    3. Zagst, Rudi & Kraus, Julia & Bertrand, Philippe, 2019. "Option-Based performance participation," Journal of Banking & Finance, Elsevier, vol. 105(C), pages 44-61.
    4. Tang, Chun-Hua, 2018. "Subjective value of the guarantees embedded in public cash-balance pension plans," Journal of Pension Economics and Finance, Cambridge University Press, vol. 17(2), pages 231-250, April.
    5. Julia Kraus & Philippe Bertrand & Rudi Zagst, 2013. "Theory of Performance Participation Strategies," Papers 1302.5339, arXiv.org.

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