Risk-adjusted performance of portfolio insurance and investors’ preferences

Dima Tawil
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Dima Tawil: ESC [Rennes] - ESC Rennes School of Business

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Abstract: This paper draws a clear line between investors' risk preferences and their choice of either Option Based Portfolio Insurance (OBPI) or Constant Proportion Portfolio Insurance (CPPI). For this purpose, OBPI and CPPI are compared using partial-moments-based risk-adjusted performance measures, which are adequate for comparing asymmetric return distributions and can be easily tailored to reflect investors' preferences. The analysis covers expected utility and prospect utility investors, among others, and the results show investors' risk preferences in the gain domain are the key determinants of the choice between OBPI and CPPI.

Keywords: Option based portfolio insurance (OBPI); Constant proportion portfolio insurance (CPPI); Risk-adjusted performance; Risk preferences (search for similar items in EconPapers)
Date: 2018-03
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Citations: View citations in EconPapers (1)

Published in Finance Research Letters, 2018, 24, pp.10-18. ⟨10.1016/j.frl.2017.05.004⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02001769

DOI: 10.1016/j.frl.2017.05.004

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