A Dynamic AutoRegressive Expectile for Time-Invariant Portfolio Protection Strategies

Benjamin Hamidi (), Bertrand Maillet and Jean-Luc Prigent
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Benjamin Hamidi: Neuflize OBC Investissements - Neuflize OBC Investissements

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Abstract: "Constant proportion portfolio insurance" (CPPI) is nowadays one of the most popular techniques for portfolio insurance strategies. It simply consists of reallocating the risky part of a portfolio with respect to market conditions, via a leverage parameter - called the multiple - guaranteeing a predetermined floor. We propose to introduce a conditional time-varying multiple as an alternative to the standard unconditional CPPI method, directly linked to actual risk management problematics. This "ex ante" approach for the conditional multiple aims to diversify the risk model associated, for example, with the expected shortfall (ES) or extreme risk measure estimations. First, we recall the portfolio insurance principles, and main properties of the CPPI strategy, including the time-invariant portfolio protection (TIPP) strategy, as introduced by Estep and Kritzman (1988). We emphasize the existence of an upper bound on the multiple, for example to hedge against sudden drops in the market. Then, we provide the main properties of the conditional multiples for well-known financial models including the discrete-time portfolio rebalancing case and Lévy processes to describe the risky asset dynamics. For this purpose, we precisely define and evaluate different gap risks, in both conditional and unconditional frameworks. As a by-product, the introduction of discrete or random time portfolio rebalancing allows us to determine and/or estimate the density of durations between rebalancements. Finally, from a more practical and statistical point of view due to trading restrictions, we present the class of Dynamic AutoRegressive Expectile (DARE) models for estimating the conditional multiple. This latter approach provides useful complementary information about the risk and performance associated with probabilistic approaches to the conditional multiple.

Keywords: CPPI; VaR; Expected Shorfall; Expectile; Quantile Regression; Dynamic Quantile Model; Extreme Value; Assurance de prtefeuille; VaR conditionnelle; Valeur Extrême (search for similar items in EconPapers)
Date: 2014-06-26
New Economics Papers: this item is included in nep-ias and nep-rmg
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Citations: View citations in EconPapers (21)

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Related works:
Journal Article: A dynamic autoregressive expectile for time-invariant portfolio protection strategies (2014)
Working Paper: A dynamic autoregressive expectile for time-invariant portfolio protection strategies (2014)
Working Paper: A dynamic autoregressive expectile for time-invariant portfolio protection strategies (2014)
Working Paper: A Dynamic AutoRegressive Expectile for Time-Invariant Portfolio Protection Strategies (2014)
Working Paper: A Dynamic AutoRegressive Expectile for Time-Invariant Portfolio Protection Strategies (2013)
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