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Constant proportion portfolio insurance under a regime switching exponential Lévy process

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  • Weng, Chengguo

Abstract

The constant proportion portfolio insurance is analyzed by assuming that the risky asset price follows a regime switching exponential Lévy process. Analytical forms of the shortfall probability, expected shortfall and expected gain are derived. The characteristic function of the gap risk is also obtained for further exploration on its distribution. The specific implementation is discussed under some popular Lévy models including the Merton’s jump–diffusion, Kou’s jump–diffusion, variance gamma and normal inverse Gaussian models. Finally, a numerical example is presented to demonstrate the implication of the established results.

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  • Weng, Chengguo, 2013. "Constant proportion portfolio insurance under a regime switching exponential Lévy process," Insurance: Mathematics and Economics, Elsevier, vol. 52(3), pages 508-521.
    • Handle: RePEc:eee:insuma:v:52:y:2013:i:3:p:508-521
    DOI: 10.1016/j.insmatheco.2013.03.001
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    Cited by:

    1. Huiling Wu & Chengguo Weng & Yan Zeng, 2018. "Equilibrium consumption and portfolio decisions with stochastic discount rate and time-varying utility functions," OR Spectrum: Quantitative Approaches in Management, Springer;Gesellschaft für Operations Research e.V., vol. 40(2), pages 541-582, March.
    2. Raquel M. Gaspar, 2016. "On Path–dependency of Constant Proportion Portfolio Insurance strategies," EcoMod2016 9381, EcoMod.
    3. 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.

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    More about this item

    Keywords

    Constant proportion portfolio insurance; Regime switching; Exponential Lévy process; Shortfall; Gap risk; Matrix exponential;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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