Dynamic Portfolio Insurance Without Options

Dynamic portfolio strategies are an interesting alternative to classical option-based investment and protection strategies. One of the most prominent techniques is Constant Proportion Portfolio Insurance (CPPI). In this chapter, we provide a review of various techniques and formulate a general framework for investment and protection strategies. The common feature of this strategy is that it empowers the investor to replicate various option like pay-off profiles without the usage of options. These strategies may replicate a simple floor type or advanced path-dependent look-back options that implement all-time high strategies with a given participation rate. We illustrate the different strategies that employ features like various types of lock-in, trailing, leverage, and risky portfolio strategies with historical simulations. We include features that allow the simulation under realistic market conditions taking into account transaction costs and the avoidance of excessive rebalancing through transaction filters. We discuss the use of exchange traded funds (ETF) to invest in broadly diversified multi-asset portfolios. The goal of this chapter was to illustrate different protection strategies and to show how a practical implementation of these strategies could look like. This chapter can serve as a guideline for simple spread-sheet models.