modeling approach of return and volatility of structured investment products with caps and floors
A popular investment structured product in Puerto Rico is the stock markettied Individual Retirement Account (IRA), which offers some stock market growth while protecting the principal. The performance of these retirement strategies has yet to be studied. This work examines the expected return and r...
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| Format: | Article |
| Language: | English |
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Universidad de Puerto Rico
2024-06-01
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| Series: | Fórum Empresarial |
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| Online Access: | https://revistas.upr.edu/index.php/forumempresarial/article/view/21422 |
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| author | Jiaer He Roberto Rivera |
| author_facet | Jiaer He Roberto Rivera |
| author_sort | Jiaer He |
| collection | DOAJ |
| description | A popular investment structured product in Puerto Rico is the stock markettied Individual Retirement Account (IRA), which offers some stock market growth while protecting the principal. The performance of these retirement strategies has yet to be studied. This work examines the expected return and risk of Puerto Rico stock market IRAs (PRIRAs) and compares their statistical properties with other investment instruments after tax. We propose a parametric modeling approach for structured products and apply it to PRIRAs. Our method first estimates the conditional expected return (and variance) of PRIRA assets from which we extract marginal moments through the Law of Iterated Expectation. Our results indicate that PRIRAs underperform against investing directly in the stock market while carrying substantial risk. PRIRAs may be reasonable for some risk-averse investors due to their principal protection and tax deferral. |
| format | Article |
| id | doaj-art-3538c7b60fe14973967bbdc504987a73 |
| institution | OA Journals |
| issn | 1541-8561 2475-8752 |
| language | English |
| publishDate | 2024-06-01 |
| publisher | Universidad de Puerto Rico |
| record_format | Article |
| series | Fórum Empresarial |
| spelling | doaj-art-3538c7b60fe14973967bbdc504987a732025-08-20T02:04:48ZengUniversidad de Puerto RicoFórum Empresarial1541-85612475-87522024-06-01577310.33801/fe.v28i2.2142216130modeling approach of return and volatility of structured investment products with caps and floorsJiaer He0Roberto Rivera1University of Puerto Rico, Mayagüez Campus, Puerto RicoUniversity of Puerto Rico, Mayagüez Campus, Puerto RicoA popular investment structured product in Puerto Rico is the stock markettied Individual Retirement Account (IRA), which offers some stock market growth while protecting the principal. The performance of these retirement strategies has yet to be studied. This work examines the expected return and risk of Puerto Rico stock market IRAs (PRIRAs) and compares their statistical properties with other investment instruments after tax. We propose a parametric modeling approach for structured products and apply it to PRIRAs. Our method first estimates the conditional expected return (and variance) of PRIRA assets from which we extract marginal moments through the Law of Iterated Expectation. Our results indicate that PRIRAs underperform against investing directly in the stock market while carrying substantial risk. PRIRAs may be reasonable for some risk-averse investors due to their principal protection and tax deferral.https://revistas.upr.edu/index.php/forumempresarial/article/view/21422individual retirement accountspuerto rico investment companies actpassive investingstock marketbond market |
| spellingShingle | Jiaer He Roberto Rivera modeling approach of return and volatility of structured investment products with caps and floors Fórum Empresarial individual retirement accounts puerto rico investment companies act passive investing stock market bond market |
| title | modeling approach of return and volatility of structured investment products with caps and floors |
| title_full | modeling approach of return and volatility of structured investment products with caps and floors |
| title_fullStr | modeling approach of return and volatility of structured investment products with caps and floors |
| title_full_unstemmed | modeling approach of return and volatility of structured investment products with caps and floors |
| title_short | modeling approach of return and volatility of structured investment products with caps and floors |
| title_sort | modeling approach of return and volatility of structured investment products with caps and floors |
| topic | individual retirement accounts puerto rico investment companies act passive investing stock market bond market |
| url | https://revistas.upr.edu/index.php/forumempresarial/article/view/21422 |
| work_keys_str_mv | AT jiaerhe modelingapproachofreturnandvolatilityofstructuredinvestmentproductswithcapsandfloors AT robertorivera modelingapproachofreturnandvolatilityofstructuredinvestmentproductswithcapsandfloors |