cppi function

Constant Proportion Portfolio Insurance (CPPI)

Implements CPPI strategy for commodity price risk management

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

Returns

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)