Portfolio Insurance Strategies: A Comparison of Standard Methods When the Volatility of the Stock is Stochastic
12 Pages Posted: 6 Oct 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 Classification: G0, G15
Suggested Citation: 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
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