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Risk-adjusted performance of portfolio insurance and investors’ preferences

Author

Listed:
  • Dima Tawil

    (ESC [Rennes] - ESC Rennes School of Business)

Abstract

This paper draws a clear line between investors' risk preferences and their choice of either Option Based Portfolio Insurance (OBPI) or Constant Proportion Portfolio Insurance (CPPI). For this purpose, OBPI and CPPI are compared using partial-moments-based risk-adjusted performance measures, which are adequate for comparing asymmetric return distributions and can be easily tailored to reflect investors' preferences. The analysis covers expected utility and prospect utility investors, among others, and the results show investors' risk preferences in the gain domain are the key determinants of the choice between OBPI and CPPI.

Suggested Citation

  • Dima Tawil, 2018. "Risk-adjusted performance of portfolio insurance and investors’ preferences," Post-Print hal-02001769, HAL.
    • Handle: RePEc:hal:journl:hal-02001769
    DOI: 10.1016/j.frl.2017.05.004
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    Cited by:

    1. Lu, Richard & Horng, Tzyy-Leng & Horng, Min-Sun & Wang, Amy Z.-H., 2023. "A performance evaluation of portfolio insurance under the Black and Scholes framework: An application of the economic index of riskiness," The Quarterly Review of Economics and Finance, Elsevier, vol. 89(C), pages 269-276.

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