Hostname: page-component-cd9895bd7-gvvz8 Total loading time: 0 Render date: 2024-12-27T05:05:20.072Z Has data issue: false hasContentIssue false
  • English
  • Français

Risk Allocation in Capital Markets: Portfolio Insurance, Tactical Asset Allocation and Collar Strategies

Published online by Cambridge University Press:  29 August 2014

Eric Chevallier  and
Heinz H. Müller
Eric Chevallier*
Affiliation:
University of Zürich
Heinz H. Müller*
Affiliation:
University of Zürich
*
Institute for Operations Research, University of Zürich, Moussonstr. 15, CH-8044 Zürich, Switzerland
IEW, University of Zürich, Blümlisalpstr. 10, CH-8006 Zürich, Switzerland
Rights & Permissions [Opens in a new window]

Abstract

Core share and HTML view are not available for this content. However, as you have access to this content, a full PDF is available via the ‘Save PDF’ action button.

The theory of risk exchange is applied on the allocation of financial risk in capital markets. It is shown how the shape of individual payoff functions depends on risk tolerance and cautiousness. For the special case where the Neumann-Morgenstern utility functions of all individual investors belong to the HARA class and have non decreasing risk tolerance it is proved that generalized versions of “portfolio insurance”, “tactical asset allocation” and “collars” are the only strategies occurring in price equilibrium.

Keywords

Non linear risk sharingprice equilibriumportfolio insurance
Type
Articles
Information
ASTIN Bulletin: The Journal of the IAA , Volume 24 , Issue 1 , May 1994 , pp. 5 - 18
Copyright
Copyright © International Actuarial Association 1994

References

REFERENCES

Arrow, K.J. (1965) Aspects in the Theory of Risk Bearing. Helsinki.Google Scholar
Black, F. and Scholes, M. (1973) The Pricing of Options and Corporate Liabilities. Journal of Political Economy 81, 637–659.CrossRefGoogle Scholar
Borch, K. (1960) The Safety loading of Reinsurance Premiums. Skandinavisk Aktuarietidskrift 43, 163–184.Google Scholar
Brennan, M.J. (1979) The Pricing of Contingent Claims in Discrete Time Models. The Journal of Finance XXXIV, No. 1, 53–68.CrossRefGoogle Scholar
Brennan, M.J. and Solanki, R. (1981) Optimal Portfolio Insurance. Journal of Financial and Quantitative Analysis Vol. XVI, No. 3, September 1981.Google Scholar
Bühlmann, H. (1980) An Economic Premium Principle. ASTIN Bulletin 11 (1), 52–60.CrossRefGoogle Scholar
Bühlmann, H. (1984) The General Economic Premium Principle. ASTIN Bulletin 14 (1), 13–21.CrossRefGoogle Scholar
Huang, C. and Litzenberger, R.H. (1988) Foundations for Financial Economics. North Holland, New York, Amsterdam, London.Google Scholar
Leland, H.E. (1980) Who should buy portfolio insurance? Journal of Finance XXXV, No. 2, 581–596.CrossRefGoogle Scholar
Lintner, J, (1965) The valuation of risk assets and the selection of risky investments in stock portfolios and capital budgets. Review of Economics and Statistics, February 1965, 13–37.Google Scholar
Lienhard, M. (1986) Calculation of Price Equilibria for Utility Functions of the HARA Class. ASTIN Bulletin 16, 91–97.CrossRefGoogle Scholar
Markowitz, H. (1952) Portfolio selection. Journal of Finance 7, 77–91.Google Scholar
Müller, H. (1990) Price Equilibria and non linear Risk Allocations in Capital Markets. Mitteilungen der Schweizerischen Vereinigung der Versicherungsmathematiker, Heft 1 1990, 115–128.Google Scholar
Müller, H. (1991) Einsatz von Optionen: Effizienzverbesserung durch nichtlineare Risikoallokationen. Schweiz. Zeitschrift für Volkswirtschaft und Statistik, 1991, Vol. 127 (3), 379–393.Google Scholar
Rubinstein, M. (1976) The Valuation of Uncertain Income Streams and the Pricing of Option. Bell Journal of Economics and Management Science 7, 407–425.CrossRefGoogle Scholar
Sharpe, W. F. (1964) Capital asset prices: a theory of market equilibrium under conditions of risk. Journal of Finance, September 1964, 425–442.Google Scholar