Constant proportion portfolio insurance in defined contribution pension plan management under discrete-time trading
- 198 Downloads
Portfolio insurance strategies are designed to protect investors against adverse market movements by providing an initially specified guarantee during the investment period. This kind of a protection mechanism is especially important for systems with long investment horizons such as pension plans. In this paper, we consider various versions of the Constant Proportion Portfolio Insurance (CPPI) method under discrete-time trading for a defined-contribution pension plan that includes regular contributions of random size dependent on a stochastic income process. We compare different floor processes for the CPPI with regard to gap-risk and cash-lock probability by computing respective risk measures.
KeywordsDefined-contribution pension plan Portfolio insurance CPPI Discrete-time trading Gap risk Cash-lock risk
- Ameur, H. B., & Prigent, J.-L. (2011). CPPI method with a conditional floor. International Journal of Business, 16(3), 218–230.Google Scholar
- Balder, S., & Mahayni, A. (2010). Cash-lock comparison of portfolio insurance strategies. Duisburg: Univ. Duisburg-Essen.Google Scholar
- Bertrand, P., & Prigent, J.-L. (2005). Portfolio insurance strategies: OBPI versus CPPI. Finance, 26(1), 5–32.Google Scholar
- Boulier, J.-F., Huang, S., & Taillard, G. (2001). Optimal management under stochastic interest rates: The case of a protected defined contribution pension fund. Insurance: Mathematics and Economics, 28, 172–189.Google Scholar
- Boulier, J.-F., & Kanniganti, A. (2005). Expected performance and risk of various portfolio insurance strategies. In Proceedings of the 5th AFIR international colloquium.Google Scholar
- Davis, E. P. (1995). Pension funds: Retirement-income security and capital markets: An international perspective. Oxford: Oxford University Press.Google Scholar
- Deelstra, G., Grasselli, M., & Koehl, P. F. (2003). Optimal investment strategies in the presence of a minimum guarantee. Insurance: Mathematics and Economics, 33(1), 189–207.Google Scholar
- Horsky, R. (2012). Barrier option pricing and CPPI-optimization. PhD Thesis, TU Kaiserslautern.Google Scholar
- Perold, A. F., & Sharpe, W. F. (1995). Dynamic strategies for asset allocation. Financial Analysts Journal, 51(1), 149–160.Google Scholar
- Temocin, B. Z., Korn, R., & Selcuk-Kestel, A. S. (2017). Constant Proportion Portfolio Insurance in defined contribution pension plan management. Annals of Operational Research. doi: 10.1007/s10479-017-2449-8.
- Temocin, B. Z. (2015). Constant Proportion Portfolio Insurance in defined contribution pension plan management. Unpublished PhD Thesis, Middle East Technical University, Ankara, Turkey.Google Scholar