Average Portfolio Insurance Strategies

Jacques Pézier and Johanna Scheller
Additional contact information
Jacques Pézier: ICMA Centre, Henley Business School, University of Reading
Johanna Scheller: ICMA Centre, Henley Business School, University of Reading

ICMA Centre Discussion Papers in Finance from Henley Business School, University of Reading

Abstract: We design average portfolio insurance (API) strategies with an investment floor and a buffer that is a power of a geometric average of the underlying asset price. We prove that API strategies are optimal for investors with hyperbolic absolute risk aversion who become progressively more risk averse over time. During the averaging period, API strategies reduce the proportion of wealth allocated to the risky asset, which is the traditional life cycle investment recommendation. We compare the sensitivities of the fair price of equivalent payoffs generated by average and constant proportion portfolio insurance strategies and illustrate the performance of API strategies.

Keywords: Portfolio insurance; constant proportion portfolio insurance; average price Asian options; optimal payoff profile; utility theory; life cycle portfolio choice; power options. (search for similar items in EconPapers)
JEL-codes: G11 G12 G13 G17 (search for similar items in EconPapers)
Date: 2012-01
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.icmacentre.ac.uk/files/discussion-papers/DP_2012_05.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.icmacentre.ac.uk/files/discussion-papers/DP_2012_05.pdf [302 Found]--> https://www.icmacentre.ac.uk/files/discussion-papers/DP_2012_05.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:rdg:icmadp:icma-dp2012-05

Access Statistics for this paper

More papers in ICMA Centre Discussion Papers in Finance from Henley Business School, University of Reading Contact information at EDIRC.
Bibliographic data for series maintained by Marie Pearson ().