The Study Of VaR Used In The Evaluation Of Portfolio Insurance

In the volatile and sluggish stock market, a financial investment product that can maintain a minimumsecurity in a bear market, also can share profit in a bull market is thought to be the best. And that is the goalof guaranteed fund, the most important application of portfolio insurance on the capital market. With theend of2010, CSRC issued the “Guidance on the guaranteed fund” to regulate and relax the guaranteed fund,so it is supposed that the guaranteed fund will usher in new opportunities in2011.Portfolio insurance was originated in the United States in the1980s, and flourished in that period. Itscore idea is via static or dynamic asset allocation to lock the risky loss in a certain range, and pursue thebenefits from a rising. This kind of feature makes portfolio insurance widely used in the guaranteed fund,social security funds, bank financing products and so on.On one hand, PI is used to avoid and manage market risks, and on the other hand, the strategy itselfalso faces potential risks. The traditional SHARP rate take standard deviation as the measurement of risk,and because the characteristics of PI changed it yields, making the distribution shape of yield no longersubject to normal distribution, so it is no longer appropriate for performance evaluation index. This paperintroduce value at risk (VaR) as the measurement of risk, and risk-adjusted returns (RAROC) which isequal to final revenue/VaR as a new indictor to evaluate the performance of PI.This paper firstly summarizes the definition of PI and VaR, introduces the operation characteristics ofguaranteed fund overseas and the application of PI. Then by using the historical data of SIASA, the papercompares the constant proportion portfolio insurance (CPPI), time invariant portfolio insurance (TIPP) andbuy-and-hold strategy (B&H) in different market status, and find that both CPPI strategy and TIPP strategy can play the role of insurance. Meanwhile, we can see that, at95%confidence level, TIPP strategy has thesmallest VaR. In the bull market, CPPI strategy has the highest VaR, followed by the B&H strategy, and inmost cases, VaR increases with the growth of the multiplier, correspondingly, the risk-adjusted return(RAROC) has the same performance. In the bear market, the B&H strategy has the highest VaR, CPPIstrategy followed, which reflects the good nature of PI, and as the multiplier and floor continue to increase,the VaR of CPPI strategy and TIPP strategy reduce, while RAROC grow. In the volatile market, CPPIstrategy has the highest VaR, followed by the B&H strategy, and as the multiplier and floor amount, theVaR of CPPI strategy of increases,while RAROC declines, and the TIPP strategy has the oppositeperformance.