Extensions of the CPPI Strategy. Monte Carlo Simulations of Various Extensions of the Basic CPPI Strategy

      Аннотация: Constant proportion portfolio insurance (CPPI) is a dynamic portfolio insurance strategy. In the CPPI structure the investor’s downside risk is limited while retaining some upside potential if the market performs well. This work introduces the basic CPPI model and explains its main features. On this basis of this model some extensions of the CPPI structure are suggested and discussed. They consist of a variable bond floor, a dynamic leverage, diversification in the underlying risky asset (two risky assets), levered positions in the risky asset and an investment strategy that diversifies over time. Simulations of these new CPPI models show that most of them do not outperform the basic model in terms of performance but they show better results in terms of reduced volatility. The only extension that results in an improved Sharpe ratio diversifies the risky asset allocation to more than one risky asset. The effect of diversification shows and the extended CPPI model outperforms the basic CPPI.

Ключевые слова: CPPI, Dynamic Investment Strategy, Portfolio Protection, Extension, Portfolio Insurance