Template-Type:ReDIF-Paper 1.0
Title: Minimum-Cost Portfolio Insurance
Author-Name: C. D. Aliprantis
Author-Name: D. Brown 
Author-Name: J. Werner
Author-Postal: Prof. Jan Werner
	Department of Economics,                  University of Minnesota,                          1012 Management and Economics,
	Minneapolis, MN 55455 U.S.A
Author-Phone: 1 612 625 0708
Author-Homepage: 
Classification-JEL: G11, G12
Keywords: Portfolio insurance, derivative markets, lattice-subspace.
Abstract: 
	Minimum-cost portfolio insurance is an investment strategy that enables an
	investor to avoid losses while still capturing  gains of a payoff of a portfolio
	at minimum cost. If derivative markets are complete, then holding a put option in
	conjunction with the reference portfolio provides minimum-cost insurance at arbitrary
	arbitrage-free security prices. We derive a characterization of incomplete derivative
	markets in which the minimum-cost portfolio insurance is independent of arbitrage-free
	security prices.

	Our characterization relies on the theory of lattice-subspaces. We establish that a
	necessary and sufficient condition for price-independent minimum-cost portfolio
	insurance is that the asset span is a lattice-subspace of the space of contingent claims.
	If the asset span is a lattice-subspace, then the minimum-cost portfolio insurance
	can be easily calculated as a portfolio that replicates the targeted payoff
	in a subset of states which is the same for every reference portfolio.

Length:   pages
Creation-Date: 1999-07
Revision-Date: 
Handle: RePEc:bon:bonsfa:599