PT  - JOURNAL ARTICLE
AU  - Jan Annaert
AU  - Marc De Ceuster
AU  - Jürgen Vandenbroucke
TI  - Mind the Floor: <em>Enhance Portfolio Insurance without Borrowing</em>
AID  - 10.3905/joi.2019.1.076
DP  - 2019 Mar 01
TA  - The Journal of Investing
PG  - joi.2019.1.076
4099  - https://pm-research.com/content/early/2019/03/01/joi.2019.1.076.short
4100  - https://pm-research.com/content/early/2019/03/01/joi.2019.1.076.full
AB  - 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.