Portfolio insurance with liquidity risk

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7 Citations (Scopus)


This paper studies a portfolio insurance problem with liquidity risk. We consider an investor who wants to maximize the expected growth rate of wealth in a low liquid market. The investor can trade assets only at random times and his wealth must not fall below a predetermined floor. We find the optimal expected growth rate and an optimal strategy. The optimal strategy is closely related with a traditional constant proportion portfolio insurance strategy. Also we show that the same strategy maximizes the growth rate almost surely. Further we study the floor effect on the growth rate.

Original languageEnglish
Pages (from-to)363-386
Number of pages24
JournalAsia-Pacific Financial Markets
Issue number4
Publication statusPublished - Dec 2007

All Science Journal Classification (ASJC) codes

  • Finance


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