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The Research And Empirical Study On Geometric Average Price Portfolio Insurance Strategies

Posted on:2014-05-21Degree:MasterType:Thesis
Country:ChinaCandidate:G J LiFull Text:PDF
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After the financial crisis, the global financial market is in downturn, uncertainties continue to increase,and China’s stock market also increases volatility. In this context, investors no longer blindly chase highincome assets associated with high risk, but pay more attention to the value of the assets. Because of thecharacteristics of locking portfolio falling risk and at no cost to capture the benefits, portfolio insurancestrategy has attracted extensive attention by investors and investment institutions both at home and abroad.Portfolio insurance theory is originated in the United States in the1980s, and has made great progressafter30years of development. But so far, the vast majority of portfolio insurance strategies are still basedon the standard option, especially the European option (European options). In the case of the CPPI strategy,which is commonly used by investors, the ultimate value of the risky asset only depends on the maturitydate of market price and exercise price, so the volatility of the market will cause the ultimate value of theportfolio has a high degree of uncertainty. In order to reduce the market fluctuations, the geometric averageprice of Asian option theory is introduced into the portfolio insurance, and a kind of portfolio insurancebased on the geometric average price (GAPPI) strategy is designed. Because the Asian option has theproperties of strong path dependence, we introduce the Asian option, on the one hand it can avoidspeculators to seek violence through the manipulation of the price of the underlying asset in close tomaturity, on the other hand it will reduce the volatility of portfolio with the approaching maturity date.This paper firstly summarizes the theory of portfolio insurance strategy, and introduces the geometricaverage price into the portfolio insurance to construct a geometric average price (GAPPI) strategy. Then byusing the historical data of the Shanghai Composite Index, this paper makes an empirical analysis withdifferent risk multipliers and different floor, and compares the traditional CPPI strategy, TIPP strategy andGAPPI strategy in the bull, bear and volatile market. Through the comparison and analysis, we found that:whether in the bull, bear, or the volatile market, GAPPI strategy, CPPI strategy and TIPP strategy all canguarantee the final portfolio value is higher than the floor of the beginning, and have better insurance effect.In the bull period, the ability of the CPPI strategy to capture returns is dominant, TIPP strategy second, theGAPPI strategy is relatively weak. But in terms of volatility and transaction cost rate of return, CPPIstrategy and TIPP strategy is not so good as GAPPI strategy. In this period, the increase of the multiplier can greatly enhance the ability of three strategies to benefit, but the increase of the floor limits this ability.In the bear period, GAPPI strategy is optimal in the ability of capital preservation, yield stability andtransaction costs, CPPI strategy and TIPP strategy are the same. In this period, the increase of the multiplierleads to the loss of portfolio value, return volatility and trading costs continue to increase, but the increaseof the floor is just the opposite. In volatile period, GAPPI strategy not only achieves the objective of theasset value, but also realizes the increase, and the volatility of returns and transaction costs are much lowerthan the CPPI strategy and TIPP strategy. Due to the increasing of the floor, TIPP strategy reduces the riskof stock price falling, so its performance is superior to the CPPI strategy. In this period, the increase of themultiplier leads to the final value of GAPPI strategy and TIPP strategy increase, and CPPI strategy declines.But the increase of the floor is just the opposite.
Keywords/Search Tags:Geometric Average Price, Portfolio Insurance Strategies, GAPPI, CPPI, TIPP
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