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Portfolio Insurance Strategies: A Comparison of Standard Methods When the Volatility of the Stock is Stochastic
Jean-Luc Prigent University of Cergy-Pontoise - THEMA Philippe Bertrand University of Aix-Marseille 2 - GREQAM International Journal of Business, Vol. 8, No. 4, 2003 Abstract: We compare the performances of the two standard portfolio insurance methods: the Option Based Portfolio Insurance (OBPI) and the Constant Proportion Portfolio Insurance (CPPI), when the volatility of the stock index is stochastic. In this framework, we provide a quite general formula for the CPPI portfolio value. We use criteria such as comparison of payoffs functions at maturity and various quantiles. We emphasize in particular the role of the insured percentage of the initial investment.
Keywords: Portfolio insurance, OBPI, CPPI, Stochastic volatility JEL Classifications: G0, G15 Accepted Paper SeriesDate posted: October 06, 2003 ; Last revised: October 19, 2003Suggested Citation |
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