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Portfolio Insurance Strategies

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Encyclopedia of Finance

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Abstract

A portfolio insurance strategy is a dynamic hedging process that provides the investor with the potential to limit downside risk while allowing participation on the upside so as to maximize the terminal value of a portfolio over a given investment horizon. This chapter firstly introduces the basic concepts and payoffs of a portfolio insurance strategy. Secondly, it describes the theory of alternative portfolio insurance strategies. Thirdly, it provides the market developments of portfolio insurance strategies and real examples of structured products. Fourthly, it addresses the implications of these strategies on the financial market stability. Finally, it empirically compares the performances of various portfolio insurance strategies during different markets and time periods.

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Notes

  1. 1.

    The magnitude of the multiplier depends on the discount factor. The lower the discount factor, the lower the multiplier in order to keep the initial exposure fixed at 25%, i.e., E = m * (V − FL).

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Author information

Authors and Affiliations

  1. Central Bank of the Republic of China (Taiwan), Taipei, Taiwan, People’s Republic of China

    Lan-chih Ho

  2. University of Birmingham, Birmingham, UK

    John Cadle & Michael Theobald

Authors
  1. Lan-chih Ho
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  2. John Cadle
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  3. Michael Theobald
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Corresponding author

Correspondence to Lan-chih Ho .

Editor information

Editors and Affiliations

  1. Rutgers School of Business, Rutgers, The State University of New Jer, Piscataway, NJ, USA

    Cheng-Few Lee

  2. Phoenix, AZ, USA

    Alice C. Lee

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Ho, Lc., Cadle, J., Theobald, M. (2021). Portfolio Insurance Strategies. In: Lee, CF., Lee, A.C. (eds) Encyclopedia of Finance. Springer, Cham. https://doi.org/10.1007/978-3-030-73443-5_62-1

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  • DOI: https://doi.org/10.1007/978-3-030-73443-5_62-1

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  • Publisher Name: Springer, Cham

  • Print ISBN: 978-3-030-73443-5

  • Online ISBN: 978-3-030-73443-5

  • eBook Packages: Springer Reference Economics and FinanceReference Module Humanities and Social SciencesReference Module Business, Economics and Social Sciences

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