Portfolio Insurance Strategies: A Comparison of Standard Methods When the Volatility of the Stock is Stochastic

12 Pages Posted: 6 Oct 2003

See all articles by Jean-Luc Prigent

Jean-Luc Prigent

University of Cergy-Pontoise - ThEMA

Philippe Bertrand

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

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 Classification: G0, G15

Suggested Citation

Prigent, Jean-Luc and Bertrand, Philippe, Portfolio Insurance Strategies: A Comparison of Standard Methods When the Volatility of the Stock is Stochastic. Available at SSRN: https://ssrn.com/abstract=450061 or http://dx.doi.org/10.2139/ssrn.450061

Jean-Luc Prigent (Contact Author)

University of Cergy-Pontoise - ThEMA ( email )

33 boulevard du port
33 bd du Port
F-95011 Cergy CEDEX
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Philippe Bertrand

AMGSM-IAE Aix-en-Provence, Aix Marseille University, CERGAM ( email )

Chemin de la Quille - Puyricard
Aix en Provence, 13089
France

KEDGE Business School ( email )

Domaine de Luminy - BP 921
BP 921
Marseille, PACA 13288
France

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