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.
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Zagst, R., Kraus, J. Stochastic dominance of portfolio insurance strategies. Ann Oper Res 185, 75–103 (2011). https://doi.org/10.1007/s10479-009-0549-9
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DOI: https://doi.org/10.1007/s10479-009-0549-9