Alternative inflation hedging strategies for ALM

Fulli-Lemaire, Nicolas (2013): Alternative inflation hedging strategies for ALM.

Abstract

Gone are the days when inflation fears had receded under years of “Great Moderation” in macroeconomics. The US subprime financial crisis, the ensuing “Great Recession” and the sovereign debt scares that spread throughout much of the industrialized world brought about a new order characterized by higher inflation volatility, severe commodity price shocks and uncertainty over sovereign bond creditworthiness to name just a few. All of which tend to put in jeopardy both conventional inflation protected strategies and nominal unhedged ones: from reduced issues of linkers to negative long-term real rates, they call into question the viability of current strategies. This paper investigates those game changing events and their asset liability management consequences for retail and institutional investors. Three alternative ways to achieve real value protection are proposed.

• Item Type: MPRA Paper
• Language: English
• Keywords: Inflation Hedging, Portfolio Allocation, Alternative Investment, Commodities, Real Rates, Core Inflation, Global Macro, Inflation Pass-through, Strategic Allocation, Portfolio Insurance, Great Recession
• Subjects: G - Financial Economics > G1 - General Financial Markets; G - Financial Economics > G2 - Financial Institutions and Services; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy; C - Mathematical and Quantitative Methods > C0 - General > C01 - Econometrics; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q43 - Energy and the Macroeconomy

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