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?:abstract
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In the present paper we study a new exotic option offering participation in a dynamic asset allocation strategy, which is an extension of the well-known Constant Proportion Portfolio Insurance (CPPI) strategy Our novel approach consists in assuming that the percentage of wealth invested in stocks cannot go under a fixed level, called guaranteed minimum equity exposure (GMEE) In particular, our proposal ensures to overcome the so-called cash-in risk, typically related to a standard CPPI technique, simultaneously guaranteeing the equity market participation We look deeper into the valuation of call and put options linked to this new CPPI-GMEE strategy A particular attention is devoted to the analysis of key parameters\' value as to gain a better understanding of the sensitivities of the option prices, when changing, for example, the embedded guarantee level To show the effectiveness of our proposal we provide a detailed computational analysis within the Heston-Vasicek framework, numerically comparing the evaluation of the price of European plain vanilla options when the underlying is either a purely risky asset, a standard CPPI portfolio and a CPPI with GMEE
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