Dynamically opted protection envelope (DOPE) - A cost-effective strategy of insuring an investment portfolio

Bhattacharya, Sukanto and Kumar, Kuldeep 2007, Dynamically opted protection envelope (DOPE) - A cost-effective strategy of insuring an investment portfolio, International research journal of finance and economics, no. 10, pp. 38-46.

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Title Dynamically opted protection envelope (DOPE) - A cost-effective strategy of insuring an investment portfolio
Author(s) Bhattacharya, Sukanto
Kumar, Kuldeep
Journal name International research journal of finance and economics
Issue number 10
Start page 38
End page 46
Publisher EuroJournals
Place of publication [United Kingdom]
Publication date 2007
ISSN 1450-2887
Keyword(s) portfolio insurance
zero-coupon bonds
OBPI
CPPI
Black-Scholes model
Summary Popular ways of hedging downside risk of a stock portfolio is by means of a constant proportion portfolio insurance (CPPI) strategy or by means of an options-based portfolio insurance strategy (OBPI). However both have drawbacks in terms of practical applicability given transaction costs. Moreover they are not useful in times of very low liquidity e.g. in a market crash. Here we shall first review the common portfolio insurance techniques and then posit an alternative approach using a zero-coupon bond to extract downside coverage to the extent desired by an investor. While the posited strategy will not guarantee full downside protection for the entire investment horizon, it is unaffected by transaction costs resulting from need to periodically reallocate funds and is a lot easier to implement practically compared to options-based strategies. Unlike CPPI and OBPI, it will work in a crash situation too.
Language eng
Field of Research 150299 Banking, Finance and Investment not elsewhere classified
Socio Economic Objective 900199 Financial Services not elsewhere classified
HERDC Research category C1.1 Refereed article in a scholarly journal
Copyright notice ©2007, EuroJournals
Persistent URL http://hdl.handle.net/10536/DRO/DU:30035232

Document type: Journal Article
Collection: Deakin Graduate School of Business
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