In the course of the recent financial crisis portfolio insurance strategies promised downside protection while still allowing participation in rising markets. An important representative of this class is the Constant Proportion Portfolio Insurance (CPPI) strategy, which is specified by the level of insurance and the constant multiplier, determining the multiple of the cushion to be dynamically invested in the risky asset. During the last two years, however, stock markets have been so volatile that standard CPPI strategies proved to be too agressive. Within the scope of this thesis we propose a more sophisticated CPPI strategy with varying multiplier depending on the current ""state of the world"" by applying the concept of Markov switching. The portfolio value and its moments as well as some interesting properties of Markov switching CPPI strategies are then derived and compared to those of the standard strategy in a Markov switching Black Scholes market. In particular, we show that there always exist Markov switching CPPI strategies that dominate the standard strategy according to the mean-variance criterion. Finally, the analytical results are verified in historical backtests.     «

In the course of the recent financial crisis portfolio insurance strategies promised downside protection while still allowing participation in rising markets. An important representative of this class is the Constant Proportion Portfolio Insurance (CPPI) strategy, which is specified by the level of insurance and the constant multiplier, determining the multiple of the cushion to be dynamically invested in the risky asset. During the last two years, however, stock markets have been so volatile th...     »