IntroductionThis assignment aims to use a dynamic CPPI strategy and discuss its effectiveness in managing an index portfolio. After defining the strategic criteria, we build an optimal portfolio based on mean-variance theory. We then manage it for the defined period of one year and apply classical performance measures (e.g. Sharpe Ratio, Treynor Ratio) and specific CPPI (e.g. Omega Ratio, T2, M2) to create a consolidated portfolio view. Finally, using data from the Wharton database, we use a multifactor analysis and discuss the performance of the managed index portfolio and its risk characteristics.2. Investment Policy and Strategic CriteriaThe investment objective is to achieve a combination of capital growth and income through investing in indices. The portfolio will initially be optimized using data focused on the period 12/31/2002-12/31/2012 and will be managed based on the quantitative principles of a dynamic Constant Proportion Portfolio Insurance (CPPI) strategy for the 2013 fiscal year. We believe that a medium risk portfolio is suitable for capital growth and income and for this reason we have chosen a risk aversion parameter of 6 and a CPPI floor of 90,000 to mitigate the potential for capital loss. Personal constraints include: the budget constraint, the short selling constraint, and the investment horizon. We will invest £100,000.00 across eight UK FTSE stock sector indices and the risk-free asset. Typically, the investment horizon defined according to the objectives of this project will be 12 months. However, the flexibility, effectiveness and downside risk protection of the selected strategy may allow us to set an investment period of 18-24 months.3. Statistical analysisA portfolio...... halfway......al based on risk preferences, personal constraints and investment objectives following the mean-variance theory. We applied a CPPI strategy to allocate assets dynamically over time and highlighted its superiority over market and benchmark portfolios. We used both classic (e.g. Sharpe Ratio) and advanced (e.g. T2, Omega Ratio) performance measures. We identified that much of the portfolio's performance can be attributed to the selection effect. Significant MoM indicates the presence of the Momentum effect in portfolio returns. We have highlighted the contribution of the Omega ratio in modern portfolio management for its ability to capture the highest moments. Overall, we conclude that insurance strategies, such as CPPI, can be very useful when investors seek insurance against rapid market declines and stock collapse..