Alternative Investments and Strategies.

CONTENTS -- Preface -- Part I. Alternative Investments -- Chapter 1. Socially Responsible Investments Sven Hroß, Christofer Vogt and Rudi Zagst -- 1.1 Introduction -- 1.2 Recent Research on SRI -- 1.3 How Sustainable is Sustainability? -- 1.3.1 Description of the Dataset -- 1.3.2 Introduction to Markov Transition Matrices -- 1.3.3 Results of Markov Transition Matrices -- 1.4 SRI in Portfolio Context -- 1.4.1 Description of the Dataset and Statistical Properties -- 1.4.2 Markov-Switching Model -- 1.4.3 Fitting the Model Parameters -- 1.4.4 Simulation of Returns -- 1.4.5 Portfolio Optimization Models -- 1.4.6 Definition of Investor Types -- 1.4.7 Optimal Portfolios -- 1.5 Conclusion -- References -- Chapter 2. Listed Private Equity in a Portfolio Context Philipp Aigner, Georg Beyschlag, Tim Friederich, Markus Kalepky and Rudi Zagst -- 2.1 Introduction -- 2.2 Defining Private Equity Categories -- 2.2.1 Financing Stages -- 2.2.2 Divestment Strategies -- 2.2.3 Type of Financing -- 2.2.4 Classification of Private Equity Fund Investments -- 2.2.4.1 Venture capital funds -- 2.2.4.2 Buyout funds -- 2.2.4.3 Leveraged buyouts (LBO) -- 2.3 Investment Possibilities - One Asset, Many Classes -- 2.3.1 Direct Investments -- 2.3.2 Private Equity Funds -- 2.3.2.1 Key players -- 2.3.3 Cash Flow Structure of a Private Equity Fund -- 2.3.4 Fund-of-Funds -- 2.3.4.1 Structure of a private equity fund-of-funds -- 2.3.4.2 Advantages -- 2.3.4.3 Disadvantages -- 2.3.5 Publicly Traded Private Equity -- 2.3.6 Secondary Transactions -- 2.3.6.1 Types of secondary transactions -- 2.3.6.2 Buyer's motivation -- 2.4 Private Equity as Alternative Asset Class in an Investment Portfolio -- 2.4.1 Characteristics of LPE Return Series -- 2.4.2 Modeling Return Series with Markov-Switching Processes -- 2.4.2.1 Markov-Switching models -- 2.4.2.2 Fitting the parameters.

2.4.2.3 Simulation of return paths -- 2.4.3 Listed Private Equity in Asset Allocation -- 2.4.3.1 Performance measurement -- 2.4.3.2 Portfolio optimization frameworks -- 2.4.3.3 Definition of investor types -- 2.4.3.4 Optimization of portfolios -- 2.5 Conclusion -- References -- Chapter 3. Alternative Real Assets in a Portfolio Context Wolfgang Mader, SvenTreu and SebastianWillutzky -- 3.1 Introduction -- 3.2 Overview on Alternative Real Assets -- 3.3 Modeling Photovoltaic Investments -- 3.3.1 General Approach -- 3.3.2 Definition of the Investment Project -- 3.3.3 Modeling of Risk Factors -- 3.3.3.1 Economic factors -- 3.3.3.2 Non-economic factors -- 3.3.3.3 Historical analysis of monthly global irradiance -- 3.3.3.4 Monte Carlo analysis of yearly global irradiance -- 3.4 Photovoltaic Investments in a Portfolio Context -- 3.4.1 Setting the Portfolio Context -- 3.4.2 Including Photovoltaic Investments in a Portfolio -- 3.4.3 Results -- 3.5 Conclusion -- References -- Chapter 4. The Freight Market and Its Derivatives Rüdiger Kiesel and Patrick Scherer -- 4.1 Introduction: the Freight Market -- 4.1.1 Vessels -- 4.1.2 Cargo -- 4.1.3 Routes -- 4.2 Freight Rates: What Drives the Market? -- 4.2.1 Demand for Shipping Capacity -- 4.2.2 Supply of Shipping Capacity -- 4.2.3 Costs -- 4.3 Freight Derivatives: Hedging or Speculating? -- 4.3.1 Forward Freight Agreement -- 4.3.2 Freight Futures -- 4.4 Explanatory Variables -- 4.4.1 Explanatory Power -- 4.4.2 Granger Causality -- 4.4.3 Selection Algorithm "Top Five" -- 4.4.4 Cointegration -- 4.5 Predicting Freight Spot and Futures Rates -- 4.6 The Backtesting Algorithm -- 4.7 Conclusion -- References -- Chapter 5. On Forward Price Modeling in Power Markets Fred Espen Benth -- 5.1 Introduction -- 5.2 HJM Approach to Power Forward Pricing -- 5.3 Power Forwards and Approximation by Geometric Brownian Motion.

5.3.1 A Geometric Brownian Motion Dynamics by Volatility Averaging -- 5.3.2 A Geometric Brownian Motion Dynamics by Moment Matching -- 5.3.3 The Covariance Structure Between Power Forwards -- 5.3.4 The Distribution of a Power Forward -- 5.3.5 Numerical Analysis of the Power Forward Distribution -- 5.4 Pricing of Options on Power Forwards -- 5.5 Conclusion -- References -- Chapter 6. Pricing Certificates Under Issuer Risk Barbara Götz, Rudi Zagst and Marcos Escobar -- 6.1 Introduction -- 6.2 The Model -- 6.3 Pricing of Certificates Under Issuer Risk -- 6.3.1 Building Blocks -- 6.3.2 Index Certificates -- 6.3.3 Participation Guarantee Certificates -- 6.3.4 Bonus Guarantee Certificates -- 6.3.5 Discount Certificates -- 6.3.6 Bonus Certificates -- 6.4 Conclusion -- A.1. PROOF OF PROPOSITION 6.1 -- A.2. PROOF OF PROPOSITION 6.2 -- A.3. PROOF OF PROPOSITION 6.3 -- A.4. PROOF OF PROPOSITION 6.4 -- References -- Chapter 7. Asset Allocation with Credit Instruments Barbara Menzinger, Anna Schlösser and Rudi Zagst -- 7.1 Introduction -- 7.2 Simulation Framework -- 7.3 Framework for Total Return Calculation -- 7.4 Optimization Framework -- 7.4.1 Mean-Variance Optimization -- 7.4.2 CVaR Optimization -- 7.5 Model Calibration and Simulation Results -- 7.5.1 Mean-Variance Approach -- 7.5.2 Conditional Value at Risk -- 7.5.3 Comparison of Selected Optimal Portfolios -- 7.6 Summary and Conclusion -- APPENDIX -- References -- Chapter 8. Cross Asset Portfolio Derivatives Stephan Höcht, Matthias Scherer and Philip Seegerer -- 8.1 Introduction to Cross Asset Portfolio Derivatives -- 8.1.1 Definitions and Examples -- 8.2 Collateralized Obligations -- 8.3 A Comparison of CFO with CTSO -- 8.3.1 Structural Features of CFO -- 8.3.2 Structural Features of CTSO -- 8.3.3 The Different Risks -- 8.3.4 Correlation of Tail Events in CTSO.

8.4 Pricing Cross Asset Portfolio Derivatives -- 8.4.1 Pricing Trigger Swaps -- 8.4.2 Pricing nth-to-Trigger Baskets -- 8.4.3 Pricing CTSO -- 8.4.4 Modeling Approaches -- 8.4.4.1 The structural approach -- 8.4.4.2 The copula approach -- 8.4.5 An Example for an nth-to Trigger Basket -- 8.4.5.1 A pricing exercise of Example 3 (structural approach) -- 8.4.5.2 A pricing exercise of Example 3 (copula approach) -- 8.4.5.3 Resulting model spreads -- 8.5 Outlook -- 8.6 Conclusion -- Acknowledgments -- References -- Part II. Alternative Strategies -- Chapter 9. Dynamic Portfolio Insurance Without Options Dominik Dersch -- 9.1 Introduction -- 9.2 Simple Strategies -- 9.2.1 Buy-and-Hold -- 9.2.2 Stop-Loss -- 9.2.3 The Bond Floor Strategy -- 9.2.4 Plain Vanilla CPPI -- 9.3 Historical Simulation I -- 9.4 Advanced Features -- 9.4.1 Transaction Costs -- 9.4.2 Transaction Filter -- 9.4.3 Lock-in Levels -- 9.4.4 Leverage and Constrain of Exposure -- 9.4.5 Rebalancing Strategies for the Risky Portfolio -- 9.4.6 CPPI and Beyond -- 9.5 Historical Simulation II -- 9.5.1 Transaction Costs and Transaction Filter -- 9.5.2 Lock-in Levels -- 9.5.3 The Use of Leverage -- 9.5.4 CPPI on a Multi-Asset Risky Portfolio -- 9.6 Implement a Dynamic Protection Strategy with ETF -- 9.7 Closing Remarks -- Acknowledgment -- References -- Chapter 10.How Good are Portfolio Insurance Strategies? Sven Balder and Antje Mahayni -- 10.1 Introduction -- 10.2 Optimal Portfolio Selection with Finite Horizons -- 10.2.1 Problem (A) -- 10.2.2 Problem (B) -- 10.2.3 Problem (C) -- 10.2.4 Comparison of Optimal Solutions -- 10.3 Utility Loss Caused by Guarantees -- 10.3.1 Justification of Guarantees and Empirical Observations -- 10.3.2 Utility Loss . -- 10.4 Utility Loss Caused by Trading Restrictions and Transaction Costs -- 10.4.1 Discrete-Time CPPI -- 10.4.2 Discrete-Time Option-Based Strategy.

10.4.3 Comments on Utility Loss and Shortfall Probability -- 10.5 Utility Loss Caused by Guarantees and Borrowing Constraints -- 10.6 Conclusion -- References -- Chapter 11. Portfolio Insurances, CPPI and CPDO, Truth or Illusion? Elisabeth Joossens and Wim Schoutens -- 11.1 Introduction -- 11.2 Credit Risk and Credit Default Swaps -- 11.2.1 Credit Risk -- 11.2.2 Credit Default Swaps (CDS) -- 11.3 Portfolio Insurances -- 11.4 Modeling of CPPI Dynamics Using Multivariate Jump-Driven Processes -- 11.4.1 Multivariate Variance Gamma Modeling -- 11.4.2 Swaptions on Credit Indices -- 11.4.2.1 Black's model -- 11.4.2.2 The variance gamma model -- 11.4.3 Spread Modeling by Correlated VG Processes -- 11.4.3.1 The pricing of CPPIs -- 11.4.3.2 Gap risk -- 11.5 Recent Developments for CPPI -- 11.5.1 Portfolio Insurance: The Extreme Value Approach to the CPPI Method -- 11.5.2 VaR Approach for Credit CPPI -- 11.5.3 CPPI with Cushion Insurance -- 11.6 A New Financial Instrument: Constant Proportion Debt Obligations -- 11.6.1 The Structure -- 11.6.2 CPDOs in the Spotlight -- 11.6.3 Rating CPDOs Under VG Dynamics -- 11.7 Comparison Between CPPI and CPDO -- 11.8 Conclusions -- References -- Chapter 12.On the Benefits of Robust Asset Allocation for CPPI Strategies Katrin Schöttle and Ralf Werner -- 12.1 Motivation -- 12.2 The Financial Market -- 12.2.1 The Basic Financial Market -- 12.2.2 The Riskless Asset -- 12.2.3 The Risky Asset -- 12.2.4 Classical Mean-Variance Analysis -- 12.2.5 The Trading Strategy -- 12.3 The Standard CPPI Strategy -- 12.3.1 The Simple Case -- 12.3.2 The General Case -- 12.3.3 Shortfall Probability of CPPI Strategies -- 12.3.4 Improving CPPI Strategies -- 12.3.5 CPPI Strategies Under Estimation Risk -- 12.4 Robust Mean-Variance Optimization and Improved CPPI Strategies -- 12.4.1 Robust Mean-Variance Analysis.

12.4.2 Uncertainty Sets Via Expert Opinions or Related Estimators.