Pricing and Performance of Mutual Funds: Lookback versus Interest Rate Guarantees
Gatzert N, Schmeiser H (2009)
Publication Language: English
Publication Type: Journal article, Original article
Publication year: 2009
Journal
Publisher: Incisive Media Limited
Book Volume: 11
Pages Range: 31-49
Journal Issue: 4
Abstract
The aim of this paper is to compare pricing and performance of mutual funds with two types of guarantees: a lookback guarantee and an interest rate guarantee. In a simulation analysis of different portfolios based on stock, bond, real estate and money market indexes, we first calibrate guarantee costs to be the same for both investment guarantee funds. Second, their performance is contrasted, measured with the Sharpe ratio, omega and Sortino ratio, and a test with respect to first-, second- and third-order stochastic dominance is provided. We further investigate the impact of the underlying fund's strategy, first looking at a conventional fund having a constant average rate of return and standard deviation over the contract term, and then at a constant proportion portfolio insurance managed fund. This analysis is intended to provide insights for investors with different risk-return preferences regarding the interaction of guarantee costs and the performance of different mutual funds with embedded investment guarantees.
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Switzerland (CH)How to cite
APA:
Gatzert, N., & Schmeiser, H. (2009). Pricing and Performance of Mutual Funds: Lookback versus Interest Rate Guarantees. The Journal of Risk, 11(4), 31-49.
MLA:
Gatzert, Nadine, and Hato Schmeiser. "Pricing and Performance of Mutual Funds: Lookback versus Interest Rate Guarantees." The Journal of Risk 11.4 (2009): 31-49.
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