Multi Horizon Portfolio Insurance Model
Ekonomická revue - Central European Review of Economic Issues, Vol. 14: 245 - 256 (2011)
14 Pages Posted: 4 Nov 2010 Last revised: 14 Feb 2013
Date Written: November 3, 2010
The paper presents and analyzes a new mutual fund management model that allocates fund’s resources with respect to different time preferences of investors. Proposed model enables explicit definition of investment horizons in regular opened-end fund framework that utilizes popular portfolio insurance strategy based on VaR. The investors are assumed to be homogeneous regarding their risk-reward preferences but heterogeneous regarding their investment horizons. Time moments when investment decisions are made by individual investors are spread out in time randomly due to different life cycles of investors. We assumed that all investors of the fund can be separated into manageable number of groups regarding their remaining investment horizon. The fundamental concept of proposed Multi horizon portfolio insurance model is to optimize composition of the fund according to the most conservative allocation among optimal portfolios of all considered groups of investors. The historical simulation based on US financial data was used to compare proposed model and regular single horizon strategy and stress test proposed model to its various parameterizations.
Keywords: portfolio choice, portfolio insurance, multi investment horizons, Value at Risk
JEL Classification: G11, G23
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