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- Title
Stochastic dominance of portfolio insurance strategies.
- Authors
Zagst, Rudi; Kraus, Julia
- Abstract
The purpose of this article is to analyze and compare two standard portfolio insurance methods: Option-based Portfolio Insurance (OBPI) and Constant Proportion Portfolio Insurance (CPPI). Various stochastic dominance criteria up to third order are considered. We derive parameter conditions implying the second- and third-order stochastic dominance of the CPPI strategy. In particular, restrictions on the CPPI multiplier resulting from the spread between the implied volatility and the empirical volatility are analyzed.
- Subjects
INVESTMENTS; PORTFOLIO management (Investments); STOCHASTIC models; PARAMETER estimation; SPREAD (Finance); MARKET volatility; RISK management in business; SECURITY systems
- Publication
Annals of Operations Research, 2011, Vol 185, Issue 1, p75
- ISSN
0254-5330
- Publication type
Article
- DOI
10.1007/s10479-009-0549-9