DYNAMIC PROPORTION PORTFOLIO INSURANCE FOR MANAGING GAP RISK

Date

2025-12-30

Author

Saydam, Su

Metadata

Show full item record

This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Item Usage Stats

85
views

0
downloads

Cite This

This thesis applies the dynamic proportion portfolio insurance strategy to manage gap risk—the probability that the portfolio value falls below the guaranteed floor between discrete rebalancing dates. The CPPI multiplier is determined as a function of time-dependent asset volatility, expected loss, and the high quantiles of loss distribution. The risky asset dynamics are modeled by the stochastic volatility (SV) model to account for volatility clustering and persistence. Using the SV model for loss characteristics during any period, we define gap risk with respect to multiplier m. Parameters and latent volatility states are estimated through Bayesian inference with Markov Chain Monte Carlo (MCMC) sampling, providing a full probabilistic characterization of uncertainty. Standardized residuals from the SV model are examined using Extreme Value Theory (EVT) through the Peaks-Over-Threshold (POT) approach. This approach models the exceedances above a high threshold with the Generalized Pareto Distribution (GPD) to estimate extreme-tail behavior and obtain high quantiles without imposing restrictive distributional assumptions. In emprical analysis, weekly return data of the BIST100 index for 25 years are analyzed to capture long-term market dynamics, including periods of elevated volatility and severe market stress. The analysis points toward a practical way of combining volatility modeling with extreme-risk estimation in portfolio insurance design for emerging markets characterized by high volatility, fat-tailed loss behavior and limited option hedging. The empirical evidence shows that the dynamically computed multiplier reacts sensitively to evolving market conditions. It tends to decline during periods of heightened volatility and heavier tails, and rises during more stable phases. This adaptive mechanism helps maintain the portfolio’s capital-protection goal, while allowing for a calibrated increase in risky-asset exposure that captures favorable market performance.

Subject Keywords

CPPI, gap risk, portfolio insurance, dynamic multiple, SOPS, dinamik çarpan, açık riski, portföy sigortası

URI

https://hdl.handle.net/11511/118250

Collections

Graduate School of Applied Mathematics, Thesis