We analyze the performance of the two main portfolio insurance methods, the OBPI and CPPI strategies, using downside risk measures. For this purpose, we introduce Kappa performance measures and especially the Omega measure. These measures take account of the entire return distribution. We show that the CPPI method performs better than the OBPI. As a-by-product, we determine the set of threshold values for these risk/reward performance measures.

The purpose of this article is to introduce and analyze the option-based performance participation (OBPP) as performance participation method based on a portfolio consisting of two risky assets. By generalizing the provided guarantee to a participation in the performance of a second risky underlying, this new kind of strategies allows to cope with well-known problems associated with standard portfolio insurance methods, especially in times of low or even negative interest rates. However, the minimum guaranteed portfolio value at the end of the investment horizon is not deterministic anymore, but subject to systematic risk instead. Hence, we compare the newly introduced OBPP with the option-based portfolio insurance (OBPI) in various dimensions such as terminal payoffs, mean-variance efficiency and stochastic dominance. To do this, general analytical expressions for all moments of the payoff distributions of the two strategies are derived. Furthermore, we show how an OBBP can be designed so that it stochastically dominates a given OBPI (with a given probability) while retaining the potential for a participation in rising markets via a so-called reserve asset. Numerical case studies show how the proposed concept can be easily implemented for practical applications.