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A scenario-based description of optimal American capital guaranteed strategies

Author

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  • Sami Attaoui
  • Vincent Lacoste
Abstract
The aim of the paper is to describe portfolio strategies with partial guarantee of the initial capital. We consider the option-based (OBPI) and the constant proportion portfolio insurance (CPPI) strategies with both European and American features. First, we provide explicit formulae for all strategies and contribute to the literature by providing the value of the American CPPI. Second, relying on both historical data and path simulations, we show that strategies perform differently in a bear market. We focus on liquidation values when the market recovers after a sharp drop. We find that the American CPPI strategy usually outperforms the American OBPI one due to the Asian component of the former and despite the lookback feature of the latter. To complete our analysis, we investigate both deltas and gammas of our strategies.

Suggested Citation

  • Sami Attaoui & Vincent Lacoste, 2013. "A scenario-based description of optimal American capital guaranteed strategies," Finance, Presses universitaires de Grenoble, vol. 34(2), pages 65-119.
    • Handle: RePEc:cai:finpug:fina_342_0065
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    References listed on IDEAS

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    Cited by:

    1. Jacques Pézier & Johanna Scheller, 2012. "Average Portfolio Insurance Strategies," ICMA Centre Discussion Papers in Finance icma-dp2012-05, Henley Business School, University of Reading.

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