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Publication A bootstrap-based comparison of portfolio insurance strategies

Type

Refereed Article

Year

2017

Author(s)

Hubert Dichtl

Wolfgang Drobetz

Martin Wambach

Journal

European Journal of Finance

Volume

23

Pages

31-59

Research Area

Asset Management

Keywords

Portfolio insurance strategies, performance measurement, bootstrap simulation

Abstract

This study presents a systematic comparison of portfolio insurance strategies. We implement a bootstrap-based hypothesis test to assess statistical significance of the differences in a variety of downside-oriented risk and performance measures for pairs of portfolio insurance strategies. Our comparison of different strategies considers the following distinguishing characteristics: static versus dynamic protection; initial wealth versus cumulated wealth protection; model-based versus model-free protection; and strong floor compliance versus probabilistic floor compliance. Our results indicate that the classical portfolio insurance strategies synthetic put and constant proportion portfolio insurance (CPPI) provide superior downside protection compared to a simple stop-loss trading rule and also exhibit a higher risk-adjusted performance in many cases (dependent on the applied performance measure). Analyzing recently developed strategies, neither the TIPP strategy (as an ‘improved’ CPPI strategy) nor the dynamic VaR-strategy provides significant improvements over the more traditional portfolio insurance strategies..

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