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 ...