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Performance evaluation of optimized portfolio insurance strategies

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  • Zieling, Daniel
  • Mahayni, Antje
  • Balder, Sven

Abstract

We use S&P 500 index return data for the time period 1985–2013 to evaluate the performance of portfolio insurance strategies. We shed light on the question if the performance of a constant proportion portfolio insurance (CPPI) strategy can be improved by means of a time-varying multiplier which depends on the estimated future volatility. Neglecting any inter-temporal hedging demand, the theoretical foundation of the strategies is given by maximizing the expected utility of a HARA investor in a diffusion model setup. If the risk premium is assumed to be proportional to the variance, the optimal strategy is a CPPI strategy. Otherwise, the multiple is time-varying (PPI). It turns out that even time-varying multiple strategies based on a rolling window of historical volatility estimates give a significant improvement of CPPI strategies. The out-performance is robust w.r.t. alternative performance measures and is also true for proportional transaction costs and adequate trigger trading.

Suggested Citation

  • 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.
    • Handle: RePEc:eee:jbfina:v:43:y:2014:i:c:p:212-225
    DOI: 10.1016/j.jbankfin.2014.03.027
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    Cited by:

    1. 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.
    2. Bertrand Maillet & Michele Costola & Massimiliano Caporin & Gregory Jannin, 2015. "On the (Ab)Use of Omega?," Working Papers 2015:02, Department of Economics, University of Venice "Ca' Foscari".
    3. repec:spr:annopr:v:262:y:2018:i:2:d:10.1007_s10479-015-1972-8 is not listed on IDEAS

    More about this item

    Keywords

    Portfolio insurance; Performance evaluation; S&P 500; Regime switching EGARCH-M model; Transaction costs; Trigger trading; Gap risk;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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