Dynamic Investment Strategies: Portfolio Insurance versus Efficient Frontier

1999 ◽  
Author(s):  
Sergei E. Esipov ◽  
Igor Vaysburd
Keyword(s):  
Efficient Frontier ◽  
Investment Strategies ◽  
Portfolio Insurance ◽  
Dynamic Investment

Mean-variance portfolio selection with an uncertain exit-time in a regime-switching market

2019 ◽  
Vol 53 (4) ◽  
pp. 1171-1186
Author(s):  
Reza Keykhaei
Keyword(s):  
Portfolio Selection ◽  
Regime Switching ◽  
Exit Time ◽  
Efficient Frontier ◽  
Optimal Investment ◽  
Homogeneous Markov Chain ◽  
Investment Strategies ◽  
Special Cases ◽  
Mean Variance Portfolio ◽  
Mean Variance

In this paper, we deal with multi-period mean-variance portfolio selection problems with an exogenous uncertain exit-time in a regime-switching market. The market is modelled by a non-homogeneous Markov chain in which the random returns of assets depend on the states of the market and investment time periods. Applying the Lagrange duality method, we derive explicit closed-form expressions for the optimal investment strategies and the efficient frontier. Also, we show that some known results in the literature can be obtained as special cases of our results. A numerical example is provided to illustrate the results.

A Study on the Strategic Application of Abnormal Risk-Return Relationship

2017 ◽  
Vol 25 (3) ◽  
pp. 339-367
Author(s):  
Youngmin Choi ◽  
Bohyun Yoon
Keyword(s):  
Capital Market ◽  
Efficient Frontier ◽  
Investment Strategies ◽  
Traditional Concept ◽  
Period Analysis ◽  
Empirical Results ◽  
Risk Return ◽  
High Return ◽  
Before And After ◽  
Preliminary Study

This paper focuses on the strategic application based on the empirical results of risk-return relationship against the classical concept. Empirical analysis from domestic data, we verify that the traditional concept-‘high risk, high return’ relationship are maintained, however, we confirm the falling pattern in the highest total volatility group. Even though we implies double sorting method to control the well known systematic factor such as BM and size, we still confirm such abnormal risk-return relationship. Furthermore, we perform sub-period analysis before and after the liberalization of Korean capital market and we find such abnormal risk-return relationship is appeared after the liberalization. Based on our empirical results, we establish and verify the new benchmark that evenly allocate highest volatility portfolio to sub-volatility portfolio. Under the new benchmark, we confirm the expansion of the efficient frontier and the improvement of Sharpe ratio. We believe that our results provide an applicability research of smart beta strategy and new benchmark based on such strategy. We expect our research to be used as preliminary study to overcome the era of “new normal” and to reform the investment strategies correspond to segmentation of benchmark.

Dynamic investment strategies for a risky R and D project

1977 ◽  
Vol 14 (1) ◽  
pp. 144-152 ◽  
Author(s):  
S. D. Deshmukh ◽  
S. D. Chikte
Keyword(s):  
Investment Strategy ◽  
Current Status ◽  
Investment Strategies ◽  
External Market ◽  
Financing Decisions ◽  
R And D ◽  
Final Project ◽  
Dynamic Investment ◽  
Market Uncertainties ◽  
Over Time

During the course of an R and D project, it is often meaningful and possible to evaluate its status, so that this information may be used for making better financing decisions over time. The project status changes stochastically due to the internal (technological) and the external (market) uncertainties, the former being partially controlled by expenditure of resources. In addition to the resource expenditure strategy, the manager must also decide when to terminate the project. Once the project is terminated, a terminal return is collected, whose value depends on the final project status. It is shown that the project should be terminated if the current status is either too low or too high to make further expenditure worthwhile. Otherwise, for an intermediate (promising) status of the project, an aggressive investment strategy is shown to be optimal. Thus, the model unifies the problems of optimally undertaking, financing and terminating an R and D project in face of various uncertainties.

Option Based Portfolio Insurance Revisited

2007 ◽  
Vol 2 (2) ◽  
pp. 195-215
Author(s):  
R. Bouchaib
Keyword(s):  
Transaction Costs ◽  
Asset Allocation ◽  
Investment Strategy ◽  
Theoretical Framework ◽  
Market Impact ◽  
Dynamic Allocation ◽  
Portfolio Insurance ◽  
Dynamic Investment ◽  
Constant Proportion Portfolio Insurance

ABSTRACTIn recent years, Constant Proportion Portfolio Insurance (CPPI) has been the most widely recognised form of portfolio insurance among market practitioners, despite a lack of theoretical framework to support it. This paper presents a revised formulation of Option Based Portfolio Insurance (OBPI) and shows, through a case study, how it can be used as a structured product and applied in practice as a dynamic investment strategy for insurance and pensions funds such as with-profits funds. CPPI and the Revised Option Based Portfolio Insurance (ROBPI) technique adopted in this paper are similar in the sense that they rely on dynamic allocation between risky and risk-free assets to provide downside protection. Comparison between the two methods shows that ROPBI is more efficient and forward looking, giving more information about downside risk and producing less volatile asset allocation, which reduces transaction costs and any market impact.

scholarly journals Constant Proportion Portfolio Insurance Strategy in Southeast European Markets

2016 ◽  
Vol 7 (1) ◽  
pp. 59-80
Author(s):  
Elma Agić-Šabeta
Keyword(s):  
Investment Strategies ◽  
Government Bond ◽  
Portfolio Insurance ◽  
Risky Assets ◽  
Constant Proportion ◽  
Bond Returns ◽  
High Volatility ◽  
Government Bond Markets ◽  
Constant Proportion Portfolio Insurance ◽  
The Government

Abstract Background: In today’s highly volatile and unpredictable market conditions, there are very few investment strategies that may offer a certain form of capital protection. The concept of portfolio insurance strategies presents an attractive investment opportunity. Objectives: The main objective of this article is to test the use of portfolio insurance strategies in Southeast European (SEE) markets. A special attention is given to modelling non-risky assets of the portfolio. Methods/Approach: Monte Carlo simulations are used to test the buy-and-hold, the constant-mix, and the constant proportion portfolio insurance (CPPI) investment strategies. A covariance discretization method is used for parameter estimation of bond returns. Results: According to the risk-adjusted return, a conservative constant mix was the best, the buy-and-hold was the second-best, and the CPPI the worst strategy in bull markets. In bear markets, the CPPI was the best in a high-volatility scenario, whereas the buy-and-hold had the same results in low- and medium-volatility conditions. In no-trend markets, the buy-and-hold was the first, the constant mix the second, and the CPPI the worst strategy. Higher transaction costs in SEE influence the efficiency of the CPPI strategy. Conclusions: Implementing the CPPI strategy in SEE could be done by combining stock markets from the region with government bond markets from Germany due to a lack of liquidity of the government bond market in SEE.

scholarly journals Optimal reinsurance and investment strategies for an insurer under monotone mean-variance criterion

2021 ◽  
Author(s):  
Bohan Li ◽  
Junyi Guo
Keyword(s):  
Optimal Strategy ◽  
Efficient Frontier ◽  
Optimal Investment ◽  
Capital Asset Pricing ◽  
Investment Strategies ◽  
Asset Pricing Model ◽  
Optimal Value ◽  
Hamilton Jacobi Bellman ◽  
Zero Sum ◽  
Mean Variance

This paper considers the optimal investment-reinsurance problem under the monotone mean-variance preference. The monotone mean-variance preference is a monotone version of the classical mean-variance preference. First of all, we reformulate the original problem as a zero-sum stochastic differential game. Secondly, the optimal strategy and the optimal value function for the monotone mean-variance problem are derived by the approach of dynamic programming and the Hamilton-Jacobi-Bellman-Isaacs equation. Thirdly, the efficient frontier is obtained and it is proved that the optimal strategy is an efficient strategy. Finally, the continuous-time monotone capital asset pricing model is derived.

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