Portfolio insurance of a portfolio reflected by FTSE Bursa Malaysia KLCI

Abstract

A good investment portfolio is a properly selected group of investment products such as stocks, bonds and cash equivalents. On top of grouping a brilliant portfolio, an excellent portfolio manager will consider the risk of downturn in financial performance as an important event that need to be taken care of at it best. This paper focuses on managing this risk of a well-diversified investment portfolio. The focus is to be narrowed down into finding the assurance value of the risk. This assurance value will be evaluated under specific strategy of buying traded European put option. The most celebrated Black-Scholes model to option pricing will be used in determining the values of these portfolio insurance strategies. General input parameters such as volatility and dividend yields of the portfolio will be taken from the performance of FTSE Bursa Malaysia KLCI (FTSEBMKL) as the portfolio is reflected by the performance on the index. The value results will be then viewed as numerical evaluation of some well-diversified portfolio examples, which will vary in term of specific input parameters of certain cases. This study provides straightforward insurance strategies a portfolio manager would have done in managing risk of downturn in the financial market. This strategy structure could be further enhanced by considering various other financial tools that are available or to be made available in the financial world.