TITLE:
Optimization of Dynamic Portfolio Insurance Model
AUTHORS:
Yuan Yao
KEYWORDS:
Portfolio Insurance; Optimization; Dynamic Replication; Investment Strategy
JOURNAL NAME:
Journal of Mathematical Finance,
Vol.2 No.2,
May
23,
2012
ABSTRACT: This paper establishes a dynamic portfolio insurance model under the condition of continuous time, based on Meton's optimal investment-consumption model, which combined the method of replicating dynamic synthetic put option using risk-free and risk assets. And it transfers the problem of investor's individual intertemporal dynamic portfolio insurance decision into a problem of static utility maximization under condition of continuous time, and give the optimal capital combination strategies corresponding to the optimal wealth level of the portfolio insurers, and compares the difference of strategies between this model and Merton model. The conclusions show that investors' optimal strategies of portfolio insurance are not dependent on their wealth, but market risk. That is to say, the higher the risk is, the more the demand of portfolio insurance is.