1 Department of Business Studies, Aarhus School of Business, Aarhus BSS, Aarhus University2 Finance Research Group, Aarhus School of Business, Aarhus BSS, Aarhus University3 Department of Economics and Business Economics, Aarhus BSS, Aarhus University4 Department of Economics and Business Economics, Aarhus BSS, Aarhus University
The paper examines the role of structured bonds in the optimal portfolio of a small retail investor. We consider the typical structured bond essentially repacking an exotic option and a zero coupon bond, i.e. an investment with portfolio insurance. The optimal portfolio is found when the investment opportunities consist of a risky reference fund, a risk-free asset and a structured bond. Key model elements are the trading strategy and utility function of the investor. Our numerical results indicate structured bonds do have basis for consideration in the optimal portfolio. The product holdings are nevertheless very cost sensitive.