Analysis of option-like fund performance fees in asset management via Monte Carlo actuarial distortion pricing
Issued Date
2023-01-01
Resource Type
ISSN
17484995
eISSN
17485002
Scopus ID
2-s2.0-85178316625
Journal Title
Annals of Actuarial Science
Volume
17
Issue
2
Start Page
285
End Page
327
Rights Holder(s)
SCOPUS
Bibliographic Citation
Annals of Actuarial Science Vol.17 No.2 (2023) , 285-327
Suggested Citation
Peters G.W., Chudtong M., De Gaetano A. Analysis of option-like fund performance fees in asset management via Monte Carlo actuarial distortion pricing. Annals of Actuarial Science Vol.17 No.2 (2023) , 285-327. 327. doi:10.1017/S1748499522000203 Retrieved from: https://repository.li.mahidol.ac.th/handle/123456789/91397
Title
Analysis of option-like fund performance fees in asset management via Monte Carlo actuarial distortion pricing
Author(s)
Other Contributor(s)
Abstract
A detailed analysis of management and performance fees for asset managers and investment funds is undertaken. While fund fees are considered as a cost of capital for investors, the structuring of such fee mechanisms in a fund can also influence a fund manager's decisions and investment strategy, thereby also influencing the investment performance of the investors funds. The study undertaken will allow for an assessment of the effect of fee structures and the potential for asymmetric incentives to arise that may promote adverse risk-taking behaviours by the fund manager, to the detriment of the investor or retiree who places a portion of their retirement savings into such a managed fund with such fee structures. As such, understanding the mechanism of fee charging as well as pricing the fees correctly is vital. An exploration of the application of actuarial distortion pricing methods for complete and incomplete market valuation is performed on a variety of path-dependent option-like performance fee structures for various funds in the European and American markets. Furthermore, several scenario analysis and sensitivity studies are undertaken. The class of Net Asset Value models adopted are Lévy processes, and the pricing is performed via Monte Carlo techniques.