Assets’ Correlation Implications for Portfolio Insurance Strategies Performance

The estimation of the multiplier parameter of portfolio insurance is crucial for this kind of investment strategies because it determines the risk exposure to the performance-seeking asset (PSA) at ...

Author(s):

Daniel Mantilla-Garcia

Enrique ter Horst

German Molina

Emilien Audeguil

The estimation of the multiplier parameter of portfolio insurance is crucial for this kind of investment strategies because it determines the risk exposure to the performance-seeking asset (PSA) at each point in time. Studies that address the estimation of the maximum multiplier of portfolio insurance strategies have been limited to the case in which the safe asset is a short-term bank account paying a constant rate of return. However, more general portfolio insurance strategies using a stochastic safe asset have important practical applications, such as the control of active-risk relative to a benchmark, as well as for the design of target retirement-income strategies. We explore the implications of taking into account the expected co-movements of the PSA and the benchmark asset for the estimation of the multiplier upper bound. In Monte Carlo simulations we find that the maximum multiplier almost doubles in size across scenarios, and the long-term returns of the strategy using this approach present stochastic dominance of order one to four over the previously tested strategies that used a multiplier that ignore expected co-movements.

Type: EDHEC Publication
Date: le 27/06/2019
Research Cluster : Finance

See Also

Innovative research: EDHEC strengthens its leadership in infrastructure at Paris Infraweek
News
- 08-10-2019
EDHECinfra, the EDHEC research centre dedicated to infrastructure, will take part in "...
HOW NEW ACADEMIC PROGRAMMES ARE BORN
News
- 02-10-2019
HOW DID THE PROGRAMME COME INTO BEING? It all started in 2016. At that time, EDHEC did...
Predictive justice: failsafe or false promise?
Publication
- 02-10-2019
Justice in trial The determination (or perception, depending on the case) of justice in...
EDHEC teams up with Coursera to launch MOOCs in machine learning techniques for financial-sector professionals
- 01-10-2019
EDHEC-Risk Institute, EDHEC Business School’s financial research hub, has teamed up...