TY - JOUR
T1 - A new choice of dynamic asset management
T2 - The variable proportion portfolio insurance
AU - Lee, Huai I.
AU - Chiang, Min Hsien
AU - Hsu, Hsinan
N1 - Copyright:
Copyright 2008 Elsevier B.V., All rights reserved.
PY - 2008/8
Y1 - 2008/8
N2 - The constant proportion portfolio insurance (CPPI) achieves the advantage of simplicity due to its constant multiple. However, a dynamic multiple could improve the effectiveness of portfolio management. In this article, we provide a complete and detailed examination of the mechanism of variable proportion portfolio insurance (VPPI) strategy. The multiple of the VPPI states that when the stock price goes up, the multiple gets larger accordingly and when the stock price goes down, the multiple gets smaller. A portfolio insurance strategy with this discipline could yield better performance. Based on this principle, we recommend an exponential proportion portfolio insurance (EPPI). In addition, we also propose a new performance measure for portfolio insurance. Compared with the CPPI, simulation and empirical evidence support that the EPPI works better in both upside capture and downside protection, implying that the EPPI could be an effective tool for asset management.
AB - The constant proportion portfolio insurance (CPPI) achieves the advantage of simplicity due to its constant multiple. However, a dynamic multiple could improve the effectiveness of portfolio management. In this article, we provide a complete and detailed examination of the mechanism of variable proportion portfolio insurance (VPPI) strategy. The multiple of the VPPI states that when the stock price goes up, the multiple gets larger accordingly and when the stock price goes down, the multiple gets smaller. A portfolio insurance strategy with this discipline could yield better performance. Based on this principle, we recommend an exponential proportion portfolio insurance (EPPI). In addition, we also propose a new performance measure for portfolio insurance. Compared with the CPPI, simulation and empirical evidence support that the EPPI works better in both upside capture and downside protection, implying that the EPPI could be an effective tool for asset management.
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U2 - 10.1080/00036840600949280
DO - 10.1080/00036840600949280
M3 - Article
AN - SCOPUS:48549088068
SN - 0003-6846
VL - 40
SP - 2135
EP - 2146
JO - Applied Financial Economics
JF - Applied Financial Economics
IS - 16
ER -