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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
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Abstract

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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

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