Enhancing balanced portfolios with cppi methodologies – insights from a simulation exercise

Francesco Rossi ()

MPRA Paper from University Library of Munich, Germany

Abstract: We investigate if using a CPPI-style methodology it is possible to “improve” the distribution of portfolio returns from the point of view of an investor holding a balanced portfolio with different allocations in Equities, and whose concern is to avoid significant negative returns and in general to maximize the skew of the returns distribution, with a yearly horizon. The starting point of the analysis is a traditional balanced portfolio investing in a constant mix of asset classes. The utility preference structure that underlies the analysis is that of an investor that is particularly adverse to large negative returns, and is willing to sacrifice (average) expected returns to reduce the severity of expected losses. This is very similar to a “safety first” approach. Hence, we will primarily be concerned with negative Skew, drawdown, volatility as negative properties of the analyzed portfolio strategies that we are seeking to minimize

Keywords: CPPI; portfolio management; drawdown; balanced portfolios; skew (search for similar items in EconPapers)
JEL-codes: G1 G10 G11 G14 G15 (search for similar items in EconPapers)
Date: 2008-12-17
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:40183

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