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Portfolio Insurance Strategies

In: Encyclopedia of Finance

Author

Listed:
  • Lan-chih Ho

    (Central Bank of the Republic of China (Taiwan))

  • John Cadle

    (University of Birmingham)

  • Michael Theobald

    (University of Birmingham)

Abstract

A portfolio insurance strategy is a dynamic hedging process that provides the investor with the potential to limit downside risk while allowing participation on the upside so as to maximize the terminal value of a portfolio over a given investment horizon. This chapter firstly introduces the basic concepts and payoffs of a portfolio insurance strategy. Secondly, it describes the theory of alternative portfolio insurance strategies. Thirdly, it provides the market developments of portfolio insurance strategies and real examples of structured products. Fourthly, it addresses the implications of these strategies on the financial market stability. Finally, it empirically compares the performances of various portfolio insurance strategies during different markets and time periods.

Suggested Citation

  • Lan-chih Ho & John Cadle & Michael Theobald, 2022. "Portfolio Insurance Strategies," Springer Books, in: Cheng-Few Lee & Alice C. Lee (ed.), Encyclopedia of Finance, edition 0, chapter 62, pages 1437-1465, Springer.
    • Handle: RePEc:spr:sprchp:978-3-030-91231-4_62
    DOI: 10.1007/978-3-030-91231-4_62
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    References listed on IDEAS

    as
    1. Leland, Hayne E, 1985. "Option Pricing and Replication with Transactions Costs," Journal of Finance, American Finance Association, vol. 40(5), pages 1283-1301, December.
    2. Simon Loria & Toan Pham & Ah Boon Sim, 1991. "The Performance of a Stock Index Futures Based Portfolio Insurance Scheme: Australian Evidence," Working Paper Series 5, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
    3. Cesari, Riccardo & Cremonini, David, 2003. "Benchmarking, portfolio insurance and technical analysis: a Monte Carlo comparison of dynamic strategies of asset allocation," Journal of Economic Dynamics and Control, Elsevier, vol. 27(6), pages 987-1011, April.
    4. Jefferson Duarte, 2008. "The Causal Effect of Mortgage Refinancing on Interest Rate Volatility: Empirical Evidence and Theoretical Implications," The Review of Financial Studies, Society for Financial Studies, vol. 21(4), pages 1689-1731, July.
    5. Lan-chih Ho & John Cadle & Michael Theobald, 2011. "An analysis of risk-based asset allocation and portfolio insurance strategies," Review of Quantitative Finance and Accounting, Springer, vol. 36(2), pages 247-267, February.
    6. Binh Huu Do, 2002. "Relative performance of dynamic portfolio insurance strategies: Australian evidence," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 42(3), pages 279-296, November.
    7. Binh Huu Do & Robert W. Faff, 2004. "Do futures‐based strategies enhance dynamic portfolio insurance?," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 24(6), pages 591-608, June.
    8. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
    9. Garman, Mark B. & Kohlhagen, Steven W., 1983. "Foreign currency option values," Journal of International Money and Finance, Elsevier, vol. 2(3), pages 231-237, December.
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    Cited by:

    1. Chiang, Chia-Chun & Niehaus, Greg, 2024. "Market discipline and policy loans," Journal of Banking & Finance, Elsevier, vol. 159(C).

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