Portfolio insurance applications in capital market

Portfolio managers feel the need of protecting their portfolios against the decrease in portfolio value while increasing wealth of portfolios. This type of strategy named portfolio insurance originated in the 70's following Leland's idea and started to develop in the financial industry in the 80's (Leland ve Rubinstein, 1976). Portfolio insurance is an investment strategy in such a way that degradation of portfolio value is protected. When preserving all or part of beginning portfolio value, it provides determined return. After Black and Sholes developed option pricing model, portfolio insurance based on mechanics of options was explored.The goal of this study is to investigate portfolio insurance technique and to constitute insurance strategies with hypothetical options pricing methods. Under the general framework of portfolio insurance, ?Buy & Hold, Constant Proportion, Synthetic Options? portfolio insurance methods were examined. The option price was calculated by incorporating time-varying volatility and autoregressive conditional variance where synthetically dynamic portfolio insurance strategies were explored. The performances of portfolio insurances? strategies were compared to find out convenient methods in accordance with Turkish?s market. Portfolio insurance strategies have been proposed for investors who escape to invest risky market by reason of financial crisis.