Constant Proportion Portfolio Insurance Effectiveness under Transaction Costs

  • Mkaouar F
  • Prigent J
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Abstract

In this paper, we examine main properties of the Constant Proportion Portfolio Insurance (CPPI) strategy, when trading in continuous-time is not allowed. We focus instead on stochastic-time rebalancing. We prove that investor's tolerance determines crucially portfolio performance, in particular when taking transaction costs into account. We illustrate this feature in the geometric Brownian case and we provide some numerical insights in this framework.

Author-supplied keywords

  • CPPI with transaction cost
  • Portfolio insurance
  • Tolerance

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Authors

  • Farid Mkaouar

  • Jean-luc Prigent

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