Abstract
Leveraged ETFs provide a convenient mechanism to dynamically change portfolio exposure. A classical portfolio insurance strategy of Black-Jones-Perold can be easily implemented with leveraged ETFs. More complex dynamic portfolio strategies that also can be implemented using leveraged ETFs. We introduce the notion of Dynamic Leverage as a VAR extending risk measure taking into account investment time horizon. We introduce a modification of Black-Jones-Perold portfolio insurance – constant Dynamic Leverage portfolio insurance. For an investment fund with dynamically controlled risk and certain risk inertia we demonstrate the existence of a critical NAV level below which the efficacy of de-leveraging is compromised.
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