Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
6897527 | European Journal of Operational Research | 2014 | 16 Pages |
Abstract
The research on financial portfolio optimization has been originally developed by Markowitz (1952). It has been further extended in many directions, among them the portfolio insurance theory introduced by Leland and Rubinstein (1976) for the “Option Based Portfolio Insurance” (OBPI) and Perold (1986) for the “Constant Proportion Portfolio Insurance” method (CPPI). The recent financial crisis has dramatically emphasized the interest of such portfolio strategies. This paper examines the CPPI method when the multiple is allowed to vary over time. To control the risk of such portfolio management, a quantile approach is introduced together with expected shortfall criteria. In this framework, we provide explicit upper bounds on the multiple as function of past asset returns and volatilities. These values can be statistically estimated from financial data, using for example ARCH type models. We show how the multiple can be chosen in order to satisfy the guarantee condition, at a given level of probability and for various financial market conditions.
Related Topics
Physical Sciences and Engineering
Computer Science
Computer Science (General)
Authors
H. Ben Ameur, J.L. Prigent,