Journal of Risk

Pricing and performance of mutual funds: lookback versus interest rate guarantees

Nadine Gatzert, Hato Schmeiser


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.

Sorry, our subscription options are not loading right now

Please try again later. Get in touch with our customer services team if this issue persists.

New to View our subscription options

You need to sign in to use this feature. If you don’t have a account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here