cppi {etrm}

Constant Proportion Portfolio Insurance (CPPI)

Description

Implements CPPI strategy for commodity price risk management

Usage

cppi(q, tdate, f, tper, rper, tcost = 0, int = TRUE)

Arguments

q

numeric value for quantity to be hedged, either positive (net buyer) or negative (net seller)

tdate

date vector with trading days

f

numeric futures price vector

tper

numeric target price markup/down to the price on the first trading day

rper

numeric risk factor as a percentage of the price on the first trading day

tcost

numeric transaction costs pr unit

int

TRUE/FALSE integer restriction on tradable volume

Value

instance of the CPPI class

Examples

# CPPI for a buyer (seller), where stop loss is set 10% above (below) initial market price.

set.seed(5)
# GBM price process parameters
mu <- 0.2
sigma <- 0.1
S0 <- 100

# time
Y <- 2
N <- 500
delta <- Y/N
t <- seq (0, 1, length = N + 1)

# price process and date vector
W <- c(0, cumsum ( sqrt(delta) * rnorm (N)))
f_gbm <- S0 * exp(mu * t + sigma * W)
tr_dates <- seq(Sys.Date(), Sys.Date()+500, by = "day")

# implement cppi strategy for buyer
cppi_b <- cppi(q = 10,
tdate = tr_dates,
f = f_gbm,
tper = 0.1,
rper = 0.1,
tcost = 0,
int = TRUE)

# implement cppi strategy for seller
cppi_s <- cppi(q = - 10,
tdate = tr_dates,
f = f_gbm,
tper = - 0.1,
rper = 0.1,
tcost = 0,
int = TRUE)