 Best portfolio insurance for long-term investment strategies in realistic conditionsJacques Pézier and Johanna Scheller Insurance: Mathematics and Economics, 2013, vol. 52, issue 2, 263-274 Abstract: Constant proportion portfolio insurance (CPPI) strategies implemented in continuous time on asset prices following geometric Brownian processes are expected utility maximising for investors with HARA utilities. But, in reality, these strategies are implemented in discrete time and asset prices might jump. We show that under these more realistic circumstances, optimal CPPI strategies are still superior to optimal option based portfolio insurance (OBPI) strategies. The effects of discrete replication and jumps on optimal strategy parameters and certainty equivalent returns (CER) are examined by simulation and turn out to be minor in typical circumstances. Hence the much discussed gap risks are unimportant for investors in both portfolio insurance strategies and comparable for insurers of the gap risks. Keywords: Capital guarantee products; Constant proportion portfolio insurance; Option based portfolio insurance; Pension funds; Jump processes; Time-changed Brownian motion; Dynamic replication in discrete time; Utility theory; Certainty equivalent return (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:52:y:2013:i:2:p:263-274 DOI: 10.1016/j.insmatheco.2013.01.001 Access Statistics for this article Insurance: Mathematics and Economics is currently edited by R. Kaas, Hansjoerg Albrecher, M. J. Goovaerts and E. S. W. Shiu More articles in Insurance: Mathematics and Economics from Elsevier |
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