Abstract
In this paper, we derive an improved methodology for proportional portfolio insurance strategies to create an investment proposal that offers both continuous drawdown protection on the downside as well as long-run participation on the upside. The key improvement lies in implementing mechanisms that ensure the portfolio insurance strategy does not lose its upside participation potential by getting stuck on the fixed-income buffer after a serious market downturn has occurred. Further, we will show the effectiveness and robustness of the methodology across the business cycle by long-term performance backtests.
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