Daniel Mantilla-García: We solve for the growth-rate optimal multiplier of a portfolio insurance strategy in the general case with a locally risky reserve asset and stochastic state variables.
Research Associate, EDHEC-Risk InstituteHead of Research & Development, Koris International
The level of the optimal time-varying multiplier turns out to be lower than the standard constant multiplier of CPPI for common parameter values. As a consequence the outperformance of the growth-optimal portfolio insurance strategy (GOPI) does not come with higher risk. In presence of meanreverting stock returns the average allocation to stocks increases with horizon and the optimal multiplier introduces a counter-cyclical ‘tactical’ component to the strategy. Furthermore, we unveil a positive relationship between the value of the strategy and the correlation between the underlying assets.
|Research Cluster :||Finance|