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Article

Mind the Floor: Enhance Portfolio Insurance without Borrowing

Jan Annaert, Marc De Ceuster and Jürgen Vandenbroucke
The Journal of Investing June 2019, joi.2019.1.076; DOI: https://doi.org/10.3905/joi.2019.1.076
Jan Annaert
is a professor of finance at University of Antwerp and Antwerp Management School in Antwerp, Belgium
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Marc De Ceuster
is a professor of finance at University of Antwerp and Antwerp Management School in Antwerp, Belgium
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Jürgen Vandenbroucke
is the expert general manager and head of innovation at KBC Asset Management NV and guest lector at University of Antwerp in Antwerp, Belgium
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Abstract

Legal borrowing restrictions are generally claimed to limit portfolio insurance performance. This article explores two alternative rebalancing rules that aim to pick up excess return subject to a borrowing constraint. One set of rules manages a volatility target for the risky assets, and a second set of rules manages the floor. Considering real-life trading conditions, the authors’ simulation results confirm that the borrowing constraint lowers average returns. The risk-adjusted performance increases, however, so there is essentially nothing wrong with the legal prohibition to borrow. Still, managing the floor enhances risk-adjusted performance even more. Tweaking the volatility of the risky assets does not.

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Mind the Floor: Enhance Portfolio Insurance without Borrowing
Jan Annaert, Marc De Ceuster, Jürgen Vandenbroucke
The Journal of Investing Mar 2019, joi.2019.1.076; DOI: 10.3905/joi.2019.1.076

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Mind the Floor: Enhance Portfolio Insurance without Borrowing
Jan Annaert, Marc De Ceuster, Jürgen Vandenbroucke
The Journal of Investing Mar 2019, joi.2019.1.076; DOI: 10.3905/joi.2019.1.076
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  • Article
    • Abstract
    • ALTERNATIVE STRATEGIES WITH FLOOR PROTECTION
    • ILLUSTRATIVE BACKTESTS
    • SIMULATION SETUP
    • PORTFOLIO COMPOSITION
    • PERFORMANCE ASSESSMENT
    • SUMMARY
    • APPENDIX
    • REFERENCES
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  • PDF (Subscribers Only)

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