Portfolio Insurance: A Comparison of Alternative Strategies

Journal of Financial Engineering, Vol. 2, No. 4, December 1993

Cass Business School Research Paper

Posted: 1 Jun 2001

Abstract

In this article we use stochastic simulation methods to study the performance of a number of different dynamic portfolio insurance strategies, including option replicating portfolio insurance (ORPI), constant proportion portfolio insurance (CPPI) and a modified stop-loss (MSLI) strategy. We assume the underlying portfolio to be the S&P 500 tracking portfolio with all dividends reinvested upon receipt. The initial time to maturity is one year. Although the differences are mostly small, our results show that ORPI typically offers more attractive results than CPPI or MSLI. Adjusting the floor rule to lock in intermediate profits or adding a constant horizon feature does not lead to superior results.

JEL Classification: G00

Suggested Citation

Kat, Harry M., Portfolio Insurance: A Comparison of Alternative Strategies. Journal of Financial Engineering, Vol. 2, No. 4, December 1993; Cass Business School Research Paper. Available at SSRN: https://ssrn.com/abstract=264324

Harry M. Kat (Contact Author)

Independent

No Address Available

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