Portfolio Insurance Strategies : OBPI versus CPPI

Portfolio insurance allows investors to recover, at maturity, a given percentage of their initial capital. This limits downside risk in falling markets and allows some participation in rising markets. Therefore, these properties prove the importance of such portfolio strategies. The two standard portfolio insurance methods are the Option Based Portfolio Insurance (OBPI) and the Constant Proportion Portfolio Insurance (CPPI).The paper analyzes and compares their performances and risk characteristics by means of various criteria such as some of their quantiles. Their dynamic hedging properties are also examined in the Black and Scholes framework. In particular, the paper shows that the insured percentage of the initial capital plays a key role. It isalso proved that OBPI is a generalized CPPI