What Is Constant Proportion Portfolio Insurance?

The fixed ratio portfolio insurance strategy was proposed by Black and Jones (1987), allowing investors to set suitable portfolio insurance based on individual requirements for asset returns and risk tolerance. The entire investment portfolio includes Active Assets and Reserved Assets. Among the two types of assets, those with higher risks and higher expected returns are active assets, and those with lower risks and low returns are retained assets. Therefore, an asset may be an active asset in some cases, but in some cases It then becomes a retained asset. In the case of stocks and risk-free assets, active assets are stocks, while retained assets are risk-free assets.

Fixed ratio portfolio insurance strategy

The formula based on the theoretical framework of a fixed ratio portfolio insurance strategy can be expressed as follows:

A t = D t + E t Et = min [M (At-Ft), At]

Among them, Et indicates that the position invested in active assets in period t (Exposure) has also become a risk exposure, M is the risk multiplier (Mutiplier), and generally M> 1, At represents the total asset value of period t (Asset), Ft is t Lowest period

The specific operation method of the fixed proportion portfolio insurance strategy is similar to the buy and hold strategy.

The CPPI and TIPP strategies do not take into account the continuous adjustment of the positions of risky assets and risk-free assets, which will bring great transaction costs. Therefore, subsequent scholars proposed three trading principles that are useful and will not affect the CPPI and TIPP insurance. Effectiveness:

The time discipline method refers to selecting a time period and adjusting active assets and conservative assets every such period.

The Market Move Discipline method is to first determine the range of a market trend. When the market value of risk assets exceeds the threshold of this range, the positions of risk assets and risk-free assets in the portfolio are adjusted.

Multiplier adjustment method (Multiplier Dicipline) refers to setting a range for the multiplier instead of being fixed as before. The range of the value of the risky asset portfolio is calculated using the multiplier. When market fluctuations cause the change in the value of the risky asset to exceed When setting the range, adjust the combination part