Dynamic Hybrid Products with Embedded Guarantee Structures

Dynamic Hybrid Products with Embedded Guarantee Structures

Added in PENSIONS 2019 JUL | IME 2019

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Dynamic hybrid products are pension products that consist of a dynamic combination of classical with profits participating life insurance contracts (or a bank account) and fund savings plans. To put such products in an optimal utility framework, we derive an optimal combination of a money market account, a CPPI-style fund and a free fund in continuous trading via transforming the original investment problem into a conventional portfolio problem in the presence of a guarantee condition (see [1]). By this, we obtain (semi-) explicit forms of the dynamic weights for the different ingredients of a dynamic hybrid product. In this talk we then present also a comparison analysis between capital performances of some insurance industry-based practical hybrid products and theoretically derived optimal dynamic guarantee products based on [1].

[1] Hambardzumyan, H. and Korn, R. (2019), “Dynamic hybrid products with guarantees - An optimal portfolio framework.” Insurance: Mathematics and Economics, vol. 84, pp. 54-66.

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