We find significant appetite for target-volatility strategies from riskaverse investors with and without the option overlay. We consider a two-period setting, which is realistic because structured investment products are usually held to maturity. Firstly, we observe a higher expected utility for target-volatility products which becomes more pronounced for higher levels of risk aversion. In particular, the target-volatility strategy is preferred to the fixedmix by risk-averse investors at any level of risk aversion. Similarly, the OBPI strategy with a target-volatility underlying exhibits better upside potential and, in the high volatility case, the strategy becomes attractive to a broader set of investors compared to the standard OBPI.

Secondly, when added to the investment universe, the portfolio maximising investors’ expected utility contains a significant allocation to a structured investment strategy. In the base case, investors for which the 40/60, 50/50, or 60/40 fixed-mix strategies of bonds and stocks are optimal would invest about 90 per cent, 76 per cent, and 62 per cent respectively in a target-volatility product with equity as underlying designed to have a constant annualised volatility of 18 per cent. If we assume the demand for the structured investment strategy is driven by a set of investors with uniformly distributed risk-aversion levels for which the optimal fixed-mix is between 20/80 and 80/20, then the average allocation to the same target volatility strategy is about 57 per cent in both the base case and the high volatility case. The average allocation to the target volatility OBPI product, however, increases from about 36 per cent to about 63 per cent, implying that a capital guarantee feature would be demanded when stochastic volatility is more pronounced.