The VPPI Trader Robot of VIMADES is a software suite managing of a portfolio hedging a liability («variable annuities», for instance) and transaction costs (brokerage fees). VPPI ensures that the value of the portfolio be always greater than or equal to the liabilities and maximize its performance taking opportunity of the underlying price.
To eradicate any risk of violation of constraints floor, it is necessary to state the two following properties that define the «minimum guaranteed investment» (MGI):
Where the investment exceeds the minimum guaranteed investment: whatever the realization of a series of underlying prices, the value of the portfolio managed by the VPPI management rule is always higher than the floor.
Where the investment is strictly less than the minimum guaranteed investment: whatever the management rule chosen, the floor constraint is violated by the completion of at least one set of underlying prices.
The initial value of the minimum guaranteed investment may be considered as a "guaranteed/performance price," a warranty cost to eradicate ruin. It corresponds, according to the context, to an "economic capital”.
The VPPI software suite consists of modules that compute:
at the initial moment of decision making, and for each future period, the minimum guaranteed investment (MGI) and the risky share of the portfolio for each value of the portfolio.
at each period, depending on the realization of the underlying values, the management of the value of the portfolio and its exposure, the number of shares of the underlying and, whenever the underlying price is not consistent with the forecasting model, the additional cost caused by the forecast error.
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