Dynamic Portfolio Insurance

Fikula Capital Management has designed a portfolio insurance policy with the aim of making sure that our portfolio of assets achieves the terminal value determined beforehand. The policy has to prove its effectiveness throughout the life of the investments until maturity, especially in the event of an economic downturn or a financial crash.  


Having eliminated nearly all the idiosyncratic risk of each individual investment through diversification, the goal of the policy to be designed was to hedge the model portfolio comprised of correlated assets against the concerned specific environmental risks. That is why we have elaborated a multifactor model rooted in the APT.


During the insurance design process, we were looking for a dynamic allocation strategy that would help us hedge our total portfolio against those specific environmental risks included in the model as factors. 


A variant and extension of the OBPI method


Fikula Capital Management has chosen this method because it gives us the opportunity to design a bespoke coverage. We have managed to create a financial montage that perfectly suits our Utility Function, Investment Philosophy, Risk Profile, and Management Style. The OBPI has been especially helpful because:


ü We have a clearly defined investment horizon


ü We have settled on a revisable target floor


ü We are willing to tolerate a path that goes temporarily through our target floor


ü We are comfortable with Options Theory


ü We have a Management Style compatible with a frequent revision of the proportions


ü We have been able to reach a competitive overall cost for the coverage


A combination of derivatives


We have had to be creative and innovative to reach a situation that optimally covers our portfolio of assets and that easily lends itself to adjustments with the passage of time.


We have ultimately decided to create a bespoke synthetic product. We have designed a combination of exchange-traded products and over-the-counter agreements to reach our goal by adjusting the following parameters:



ü Convexity of the profile


ü Probability to go through the floor


ü Volatility


ü Changes in volatility


ü Flexibility and liquidity


ü Path dependence



ü Counterparty risk


ü Margin calls


ü Transaction costs


ü Discontinuities and jumps


ü Changes in interest rates


ü Delta-neutral positions



Market crashes and counterparty risks


In spite of our selection of the OBPI as a guiding method, our choice of derivatives is such that it will also give us the room to protect our assets against severe drops in financial markets and periods of extreme volatility.



As for the counterparty risk, we are convinced that we have been able to bring it down to the minimum possible.


Our private equity firm is built around human identity and behavioural psychology.