Dynamic - Constant proportion portfolio insurance: aplicação ao índice FTSE 100

Abstract

Given the risk aversion usually associated with financial markets investors’, it is common, in literature, to present and study strategies to be used in order to limit risk. In this work, a traditional risk management strategy Constant Proportion Portfolio Insurance Strategy (CPPI) is modified in order to use a dynamic multiplier that varies based on the fluctuations of the risky asset prices. This strategy is called Dynamic - Constant Proportion Portfolio Insurance (D-CPPI). The multiplier is adjusted according to the price fluctuations, which means that it will increase when the quote goes up and decrease when the quote goes down. The work is based on the model presented by Yao & Li (2016) and is applied to the British stock market (FTSE 100) in the 2008-2018 period. The performance of D-CPPI is analysed and compared with the performance of the traditional CPPI strategy and with the Buy and Hold (BH) strategy. It also sought to analyse the impact of Brexit on the British market and whether the use of D-CPPI effectively reduces the risk faced by investors in this troubled period. The results show that the D-CPPI has the best profitability rates in falling markets despite its performance is generally lower than CPPI and BH strategies. BH proves to be the strategy that achieves better performance, despite being the one with the highest levels of risk. Brexit had a great impact in the market, however, the use of D-CPPI allowed to guarantee the expected results.