Balder, Sven
[Verfasser:in]
;
Brandl, Michael
[Sonstige Person, Familie und Körperschaft];
Mahayni, Antje Brigitte
[Sonstige Person, Familie und Körperschaft]
Effectiveness of Cppi Strategies Under Discrete-Time Trading
Anmerkungen:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments April 21, 2006 erstellt
Beschreibung:
The paper analyzes the effectiveness of the constant proportion portfolio insurance (CPPI) method under trading restrictions. If the CPPI method is applied in continuous time, the CPPI strategies provide a value above a floor level unless the price dynamic of the risky asset permits jumps. The risk of violating the floor protection is called gap risk. In practice, it is caused by liquidity constraints and price jumps. Both can be modelled in a setup where the price dynamic of the risky asset is described by a continuous-time stochastic process but trading is restricted to discrete time.We propose a discrete-time version of the continuous-time CPPI strategies which satisfies three conditions. The resulting strategies are self-financing, the asset exposure is non-negative and the value process converges. We determine risk measures such as the shortfall probability and the expected shortfall and discuss criteria which ensure that the gap risk does not increase to a level which contradicts the original intention of portfolio insurance