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.