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

“The financial system will be crucial to supporting and accelerating investment in clean energy and the technologies needed to decarbonise the economy”
News
- 28-11-2019
HOW HAS CLIMATE CHANGE IMPACTED FINANCE AND INVESTORS TO DATE? The ever-greater damage...
BRINGING SUSTAINABILITY TO BUSINESS EDUCATION
News
- 22-11-2019
WHY CHANGE A WINNING FORMULA? You have to adapt if you want to keep on winning....
EDHEC OFFERS A NEW ONLINE TRAINING WITH STANFORD CENTER FOR PROFESSIONAL DEVELOPMENT AND STRENGHTENS ITS DIGITAL TOOLS
News
- 20-11-2019
EDHEC is proud to announce that the Bachelors students of the EDHEC BSc Online can now...
Can financial theory make sense of the factor zoo?
News
- 20-11-2019
EDHEC PhD in Finance Newsletter - November 2019  Editorial signed by Laurent Calvet,...