Abstract

http://ssrn.com/abstract=299688
 
 

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Portfolio Insurance Strategies: OBPI Versus CPPI


Philippe Bertrand


IAE Aix-en-Provence, Aix Marseille University, CERGAM; KEDGE Business School

Jean-Luc Prigent


University of Cergy-Pontoise - ThEMA

December 1, 2001

University of CERGY Working Paper No. 2001-30
GREQAM Working Paper

Abstract:     
We compare performances of the two standard portfolio insurance methods: the Option Based Portfolio Insurance (OBPI) and the Constant Proportion Portfolio Insurance (CPPI). First we examine basic properties of these two strategies and compare them by means of various criteria: comparison of their payoffs, possible property of stochastic dominance, expectations, variances, skewness and kurtosis of their returns, and some of the quantiles of their returns. We prove that the OBPI method can be analyzed as a kind of CPPI where the multiple is allowed to vary. We then study the properties of this varying multiple.

In a second section, we analyze more deeply both method's dynamic properties. We turn our attention to the dynamics management involved by these two strategies. Although the pure OBPI do not require any management by the buyer (if the put or call option is available on the market), we can calculate the "greeks" of its call part. We derive the "greeks" of the CPPI and show the very different nature of the dynamic properties of the two strategies.

Number of Pages in PDF File: 20

Keywords: Portfolio Insurance, OBPI, CPPI

JEL Classification: G11

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Date posted: February 21, 2002 ; Last revised: January 24, 2014

Suggested Citation

Bertrand, Philippe and Prigent , Jean-Luc, Portfolio Insurance Strategies: OBPI Versus CPPI (December 1, 2001). University of CERGY Working Paper No. 2001-30; GREQAM Working Paper. Available at SSRN: http://ssrn.com/abstract=299688 or http://dx.doi.org/10.2139/ssrn.299688

Contact Information

Philippe Bertrand
IAE Aix-en-Provence, Aix Marseille University, CERGAM ( email )
2, rue de la Charité
Marseille, 13002
France
KEDGE Business School ( email )
Domaine de Luminy - BP 921
BP 921
Marseille, PACA 13288
France
Jean-Luc Prigent (Contact Author)
University of Cergy-Pontoise - ThEMA ( email )
33 boulevard du port
33 bd du Port
F-95011 Cergy CEDEX
France
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