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A dynamic autoregressive expectile for time-invariant portfolio protection strategies

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  • Hamidi, Benjamin
  • Maillet, Bertrand
  • Prigent, Jean-Luc

Abstract

“Constant proportion portfolio insurance” is a popular technique among portfolio insurance strategies: the risky part of a portfolio is reallocated with respect to market conditions, via a fixed parameter (the multiple), guaranteeing a predetermined floor. We propose here to use a conditional time-varying multiple as an alternative. We provide the main properties of the conditional multiples for some mainstream cases, including discrete-time rebalancing and an underlying risk asset driven by the Lévy process, while evaluating conditional and unconditional gap risks. Finally, we evaluate the use of a dynamic autoregressive expectile model for estimating the conditional multiple in such a context.

Suggested Citation

  • Hamidi, Benjamin & Maillet, Bertrand & Prigent, Jean-Luc, 2014. "A dynamic autoregressive expectile for time-invariant portfolio protection strategies," Journal of Economic Dynamics and Control, Elsevier, vol. 46(C), pages 1-29.
    • Handle: RePEc:eee:dyncon:v:46:y:2014:i:c:p:1-29
    DOI: 10.1016/j.jedc.2014.05.005
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    Cited by:

    1. Caporin, Massimiliano & Costola, Michele & Jannin, Gregory & Maillet, Bertrand, 2018. "“On the (Ab)use of Omega?”," Journal of Empirical Finance, Elsevier, vol. 46(C), pages 11-33.
    2. Xiu Xu & Andrija Mihoci & Wolfgang Karl Hardle, 2020. "lCARE -- localizing Conditional AutoRegressive Expectiles," Papers 2009.13215, arXiv.org.
    3. Ben Ameur, H. & Prigent, J.-L., 2018. "Risk management of time varying floors for dynamic portfolio insurance," European Journal of Operational Research, Elsevier, vol. 269(1), pages 363-381.
    4. Naceur Naguez, 2018. "Dynamic portfolio insurance strategies: risk management under Johnson distributions," Annals of Operations Research, Springer, vol. 262(2), pages 605-629, March.
    5. Olga Biedova & Victoria Steblovskaya, 2020. "Multiplier Optimization For Constant Proportion Portfolio Insurance (Cppi) Strategy," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 23(02), pages 1-22, March.
    6. Carole Bernard & Massimiliano Caporin & Bertrand Maillet & Xiang Zhang, 2023. "Omega Compatibility: A Meta-analysis," Computational Economics, Springer;Society for Computational Economics, vol. 62(2), pages 493-526, August.
    7. Naceur Naguez & Jean-Luc Prigent, 2014. "Dynamic Portfolio Insurance Strategies: Risk Management under Johnson Distributions," Working Papers 2014-329, Department of Research, Ipag Business School.
    8. Tawil, Dima, 2018. "Risk-adjusted performance of portfolio insurance and investors’ preferences," Finance Research Letters, Elsevier, vol. 24(C), pages 10-18.
    9. Xu, Xiu & Mihoci, Andrija & Härdle, Wolfgang Karl, 2018. "lCARE - localizing conditional autoregressive expectiles," Journal of Empirical Finance, Elsevier, vol. 48(C), pages 198-220.
    10. Xu, Xiu & Mihoci, Andrija & Härdle, Wolfgang Karl, 2015. "lCARE: Localizing conditional autoregressive expectiles," SFB 649 Discussion Papers 2015-052, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    11. Wentao Hu & Cuixia Chen & Yufeng Shi & Ze Chen, 2022. "A Tail Measure With Variable Risk Tolerance: Application in Dynamic Portfolio Insurance Strategy," Methodology and Computing in Applied Probability, Springer, vol. 24(2), pages 831-874, June.
    12. Farooq, Muhammad & Steinwart, Ingo, 2017. "An SVM-like approach for expectile regression," Computational Statistics & Data Analysis, Elsevier, vol. 109(C), pages 159-181.
    13. repec:ipg:wpaper:2014-510 is not listed on IDEAS
    14. Branger, Nicole & Mahayni, Antje & Zieling, Daniel, 2015. "Robustness of stable volatility strategies," Journal of Economic Dynamics and Control, Elsevier, vol. 60(C), pages 134-151.
    15. repec:ipg:wpaper:2014-604 is not listed on IDEAS
    16. repec:ipg:wpaper:2014-511 is not listed on IDEAS
    17. Peyman Alipour & Ali Foroush Bastani, 2023. "Value-at-Risk-Based Portfolio Insurance: Performance Evaluation and Benchmarking Against CPPI in a Markov-Modulated Regime-Switching Market," Papers 2305.12539, arXiv.org.
    18. repec:ipg:wpaper:2014-509 is not listed on IDEAS
    19. repec:ipg:wpaper:2014-468 is not listed on IDEAS
    20. repec:ipg:wpaper:2014-531 is not listed on IDEAS
    21. Katia Colaneri & Daniele Mancinelli & Immacolata Oliva, 2024. "On the optimal design of a new class of proportional portfolio insurance strategies in a jump-diffusion framework," Papers 2407.21148, arXiv.org.
    22. Zieling, Daniel & Mahayni, Antje & Balder, Sven, 2014. "Performance evaluation of optimized portfolio insurance strategies," Journal of Banking & Finance, Elsevier, vol. 43(C), pages 212-225.

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    More about this item

    Keywords

    CPPI; Expected shortfall; Expectile; Quantile regression; Dynamic quantile model;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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