New insights on portfolio insurance strategies for financial and longevity risk management

Portfolio insurance strategies, designed to safeguard a minimum level of wealth while participating in market gains, have become a linchpin of the asset management industry. The present research work focuses on various portfolio insurance strategies, such as constant proportion portfolio insurance (CPPI) strategy, time–invariant portfolio protection (TIPP) strategy, and proportional portfolio insurance (PPI) strategy, offering insights into their advantages and addressing their critical issues, including cash–locked positions and gap risk. In particular, the study explores modifications to the latter baseline strategies, focusing on improving market participation and capital protection, in a wide range of applications spanning from structured investment products with capital protection to pension funds. Notably, a new variant of the TIPP strategy, the TIPP with guaranteed minimum equity exposure (G–TIPP), is introduced, demonstrating its effectiveness in structured investment products with capital protection. The thesis also addresses the shortcomings of existing PI strategies in managing the accumulation phase of defined contribution (DC) pension funds, proposing an innovative approach that simultaneously protects the fund’s members against market and longevity risks. Finally, the study investigates the determination of optimal exogenous parameters of a modified version of the PPI strategy in markets with frictions, such as jumps in risky asset dynamics. This new PPI strategy is able to immunize the investor from gap risk P–a.s. over the entire investment horizon. The present dissertation comprises five chapters, each contributing to the understanding and advancements of PI strategies, offering valuable insights for academics and practitioners.