Investigation of Portfolio Strategies

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Examensarbete för masterexamen
Master Thesis

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This thesis creates a model for simulating stocks and interest rates to compare portfolio strategies. The two portfolio strategies used in the thesis are CPPI and OBPI. CPPI (constant proportion portfolio insurance) is a dynamic strategy that changes the amount in the risky asset and the safe asset at every timestep. OBPI (option based portfolio insurance) is a static strategy that invest an amount in the stock and the put option. It is found out that OBPI performs better in a decreasing market and that CPPI performs better in an increasing market. The model used in this thesis can be seen as an extended Black-Scholes model. The stock will be modelled as a NIG (normal inverse Gaussian) with GARCH as stochastic volatility. The interest rate is modelled by a CIR (Cox, Ingersoll and Ross) model. There are some problems with this model, but it is better than the Black-Scholes model. Keywords:

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Grundläggande vetenskaper, Data- och informationsvetenskap, Basic Sciences, Computer and Information Science

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