Assessing goal-based performance with structured products

In the fast growing realm of portfolio management, the most known and utilized framework, Modern Portfolio Theory (MPT), has traditionally been the foundational model for asset allocation and portfolio construction. Although its popularity, in the past decades several scholars have started doubting the effectiveness and quality of the results obtained through this method. As we will see more into details in the following chapters, these models frequently fail to reflect the complex behaviours and preferences of real investors, because one of the key (and most deleterious) assumption made is that investors behave and manage their wealth in a rational way. Subsequently, Behavioural Portfolio Theory (BPT), firstly and "officially" introduced by , started addressing these shortcomings by highlighting the psychological and goal-driven foundations of investment decisions. Within this perspective, investors are recognised as heterogeneous agents with varied aspirations, distinct mental accounts, asymmetric risk–return attitudes, and, most importantly, their are considered more human, thus taking into account psychological biases as well. This work in particular investigates the application of the Horizon-Asymmetry Mental Accounting (HAMA) model, introduced by Hübner and Lejeune (2021), specifically in the context of structured products. While structured products may be suboptimal from a classical risk–return perspective, their persistent popularity is often attributed to behavioural biases such as loss aversion, the preference for capital protection, and the attraction to lottery-type "wins". The main goal of this research is to evaluate the goal-based performance of structured products through the lens of the HAMA model. By simulating a range of market environments and investor types, the study assesses four commonly used structured strategies: protective puts, bonus certificates, covered calls, and collars, all across varying investment horizons and risk preferences. This approach not only sheds light on the behavioural appeal of these instruments but also demonstrates the practical value of the HAMA model in aligning structured product strategies with distinct investor financial (and life) objectives. This thesis is structured to guide the reader through both the theoretical foundations and the empirical analysis of structured products in portfolio management. The work opens with a brief introduction to Modern Portfolio Theory and its comparison with Behavioral Portfolio Theory, setting the stage by discussing both the fundamental principles and the main critiques that have emerged in the last decades. After that, the second chapter constitutes an in depth literature review of BPT models that were introduced in the last thirty years. Building on this, the third chapter is then dedicated to specifically the HAMA Model, which forms the methodological core of the study. The following section goes then into details on the presentation and implementation of the model itself. In the same part, there will be presented the empirical findings and discussion on them. Furthermore, a comparative analysis has been carried out, with the intention of giving to the reader a broad and comprehensive view of the research. The thesis then concludes with which a brief summarize of the main findings and discusses the limitations of the work, and proposes possible directions for the future research.