Options on CPPI with guaranteed minimum equity exposure

L. Di Persio and I. Oliva. K. Wallbaum

Papers from arXiv.org

Abstract: In the present paper we provide a two-step principal protection strategy obtained by combining a modification of the Constant Proportion Portfolio Insurance (CPPI) algorithm and a classical Option Based Portfolio Insurance (OBPI) mechanism. Such a novel approach consists in assuming that the percentage of wealth invested in stocks cannot go under a fixed level, called guaranteed minimum equity exposure, and using such an adjusted CPPI portfolio as the underlying of an option. The first stage ensures to overcome the so called cash-in risk, typically related to a standard CPPI technique, while the second one guarantees the equity market participation. To show the effectiveness of our proposal we provide a detailed computational analysis within the Heston-Vasicek framework, numerically comparing the evaluation of the price of European plain vanilla options when the underlying is either a purely risky asset, a standard CPPI portfolio and a CPPI with guaranteed minimum equity exposure.

Date: 2019-02
New Economics Papers: this item is included in nep-ias
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://arxiv.org/pdf/1902.06505 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1902.06505

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().