Numerical Analysis And Empirical Study On Portfolio Insurance

Portfolio insurance is a kind of dynamic asset allocation, the main goal of which is to provide downside protection for the value of stock portfolio while preserving much of the upside potential. The general principle of portfolio insurance is to increase the size of stock invested in a bull market and decrease the percentage invested in a bear market. The performance of portfolio insurance is conditional on the choice of portfolio insurance strategy, the floor return of the insurance strategy, the percentage of the portfolio's assets covered by insurance, the risk of the underlying portfolio, the insurance strategy's horizon, the transaction costs, risk free rates, and adjustment methods and so on.Basing on some simple portfolio insurance strategies, this paper presents two more strategies,Potive-Time Invariant Portfolio Protection(P-TIPP) strategy and Equilibrium-Value Grow Portfolio Insurance (EGPI) strategy. The former one derives from Time-Invariant Portfolio Protection (TIPP) strategy and Constant Protection Portfolio Insurance (CPPI) strategy. The latter one retains the advantage of the Value Grow Portfolio Insurance (VGPI) strategy and considers the equilibrium of the TIPP strategy. Using empirical evidence on Shanghai stock exchange composite index and deposit rates, we compare different method's performance under ideal and real condition.Also this paper testifies positively at same parameter of EGPI strategy and different parameter of adjustment discipline. By choosing three common adjustment disciplines, it compares the performance of the EGPI strategy apart lying on whether considered the transaction cost, and then finds the more practicable adjustment discipline.