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Profiting with Synthetic Annuities: Option Strategies to Increase Yield and Control Portfolio Risk by Michael Lovelady

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2. Synthetic Annuity Design

This chapter provides an overview of the synthetic annuity (SynA) and how options are used to achieve the design objectives outlined in the preface, including:

• The explicit use of hedging, insurance, and risk allocations in risk management instead of reliance on traditional portfolio models

• The desire for greater yields not related to market direction

• A recognition of behavioral influences on investor performance

• The growing importance of volatility-reducing quantitative methods, particularly those related to stock options

• The desire of many investors for annuity-like income streams

The presentation is somewhat unique in that there are no formulas. Structured securities, such as a SynA, become very complex ...

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