The payoff distribution model: an application to dynamic portfolio insurance

Alexandre Hocquard, Nicolas Papageorgiou and Bruno Remillard

Quantitative Finance, 2015, vol. 15, issue 2, 299-312

Abstract: We propose an innovative approach for dynamic portfolio insurance that overcomes many of the limitations of the earlier techniques. We transform the Payoff Distribution Model, originally introduced by Dybvig [ J . Business , 1988, 61 (3), 369-393] as a performance measure, into a fund management tool. This approach allows us to generate funds with pre-specified distributional properties. Specifically, we generate funds that are characterized by a Left Truncated Gaussian distribution and then demonstrate out of sample, using different performance and risk measures, that this approach to managing market exposure leads to a better risk control at a lower cost than more popular techniques such as the CPPI.

Date: 2015
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Citations: View citations in EconPapers (8)

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DOI: 10.1080/14697688.2012.661872

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