Equity portfolio insurance against a benchmark: Setting, replication and optimality

This paper undertakes the issue of portfolio insurance from the perspective of a risk-averse agent requiring his financial wealth to grow at a floored rate in excess of an equity benchmark. The suggested solution is a generalization of the CPPI approach within a two-equity asset framework. The paper examines some features of this extension related to its dynamic, its relative risk-reward profile and its static replication. It focuses more specifically on the optimal design of this portfolio strategy in the sense of consumption-investment decision making.