Credit strategies that appeal to a number of investors
We focus on asymmetric risk-management strategies. These strategies appeal to a number of investors. They are utility-maximizing for investors whose risk aversion becomes infinitely high when their wealth goes below a minimum threshold, but declines with rising wealth.
According to Leland (1980) they exhibit a HARA (hyperbolic absolute risk aversion) utility function. In general, the strategies that try to protect portfolio value in falling markets come in different forms. There are two broad categories, namely static and dynamic strategies. Static strategies are characterized by an engineering process or a simple stop-loss mechanism. In the engineering process the initial portfolio structure is calculated as a mixture of assets and derivatives. This structure is bought and left untouched until it matures, except for cash flows that have to be invested or generated by proportional reduction of the structure.
