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Performance Participation Strategies: OBPP versus CPPP

Abstract : The goal of this paper is to provide and examine an important extension of the usual portfolio insurance, namely to study the notion of portfolio performance participation. In this framework, the portfolio is based on two risky assets: the first one corresponds to a reserve asset, while the second one is considered as an active asset which has usually both a higher mean and a higher variance. We aim at insuring a given percentage of the reserve asset return, whatever the market fluctuations. The two main performance participation methods are the Option-Based Performance Participation (OBPP) and the Constant Proportion Performance Participation (CPPP). We compare these two portfolio strategies by means of various criteria such as their payoffs at maturity, their four first moments and their cumulative distributions functions. We also compare their dynamic hedging properties by computing in particular their deltas and vegas.
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https://hal-cyu.archives-ouvertes.fr//hal-03679694
Contributor : Jean-Luc Prigent Connect in order to contact the contributor
Submitted on : Thursday, May 26, 2022 - 11:55:57 PM
Last modification on : Friday, May 27, 2022 - 3:19:47 PM

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Philippe Bertrand, Jean-Luc Prigent. Performance Participation Strategies: OBPP versus CPPP. Finance, Presses universitaires de Grenoble, 2022, 43 (1), pp.123-150. ⟨10.3917/fina.431.0123⟩. ⟨hal-03679694⟩

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