What is option based portfolio insurance?
Option-based portfolio insurance (OBPI) refers to a set of strategies in which either a conventional put option (protective put) or a replicated put option (synthetic put) is used to insure a portfolio against adverse price movements.
What is dynamic asset allocation strategy?
What Is Dynamic Asset Allocation? Dynamic asset allocation is a portfolio management strategy that frequently adjusts the mix of asset classes to suit market conditions. Adjustments usually involve reducing positions in the worst-performing asset classes while adding to positions in the best-performing assets.
Why is portfolio insurance considered a dynamic hedging strategy?
A portfolio insurance strategy is a dynamic hedging process that provides the investor with the potential to limit downside risk while allowing participation on the upside so as to maximize the terminal value of a portfolio over a given investment horizon.
What is insured asset allocation?
For investors averse to risk, the insured asset allocation is the ideal strategy to adopt. It involves setting a base asset value from which the portfolio should not drop. If it drops, the investor takes the necessary action to avert the risk.
How do I insure my investment portfolio?
Investing in a whole index such as the S&P 500 or Dow Jones Industrial Average, which encompass many stocks, is a more effective strategy to insure individual stock investments. Bonds, commodities, currencies, and funds are also valuable assets to diversify a portfolio.
What is the difference between strategic tactical and dynamic asset allocation?
Strategic asset allocation involves setting an asset mix for the long-term with periodic adjustments, while dynamic asset allocation involves frequent portfolio adjustments to respond to changes in market conditions.
What are the two categories in asset allocation?
Comparing strategic and dynamic asset allocation It is difficult to compare performance of strategic and dynamic asset allocation based funds across different market conditions and come to a definitive conclusion. Top performing funds across both categories have given good returns.
How do you use option insurance?
A put option gives its owner the right to sell a stock at a set price by a certain date. Buying a put option when you also own the stock is like buying insurance, or hedging against a possible decline, because the put option guarantees you a set sell price on that stock, if you want it, at a later date.