CPPI Method with a Conditional Floor
نویسندگان
چکیده
We propose an extension of the CPPI method, which is based on conditional floors. In this framework, we examine in particular the margin based strategies. This method allows to keep part of the past gains and to protect the portfolio value against future high drawdowns of the financial market. However, as for the standard CPPI method, the investor can benefit from potential market rises. To control the risk of such strategies, we introduce the Value-at-Risk (VaR) as risk measure. We show that the conditional floor must be higher than a lower bound. We illustrate these results, for a quite general ARCH type model, including the Egarch(1,1) as a special case. JEL Classifications: G11, C22
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