标题: Is Schweser wrong? [打印本页] 作者: Wendy01 时间: 2011-7-11 18:56 标题: Is Schweser wrong?
B5, p158, first bullet point in middle of page: "The slope of the line remains constant with CPPI"
Here the "line" refers to CPPI's Payoff diagram, which is Figure 12 on p162 . It's a convex diagram, so the slope changes at every point.
I think Schweser simply made a mistake, which has not yet been reflected on their Erreta page. Thoughts?作者: aidebaobao 时间: 2011-7-11 18:56
No , there is no mistake. CPPI formula is Stocks = M (Assets - Floor). That is a straight line formula y = mx + c作者: NakedPuts2011 时间: 2011-7-11 18:56
GetSetGo,
the m in the formula is NOT the slope of the payoff diagram, but the slope in the Exposure Diagram, in which CPPI's m > 1, while CM < 1 and B&H = 1.作者: Chuckrox 时间: 2011-7-11 18:56
Stocks and Assets are variables M*Floor is constant.
Stocks = M* Assets - M*Floor (constant)
M depends on how aggressive we want the portfolio to rebalance in a trending market. Higher M leads to more allocation to stocks for each percentage rise in the stock market.作者: oneboy 时间: 2011-7-11 18:56
Your analysis of the m and formula is correct. However that is NOT where we disagree.
The formulas, thus the Ms, are plotted on their respective Exposure Diagram. Each strategy has a straight line on this diagram.
My doubt over Schweser comes from its discussion regarding the Payoff Diagram, which, for CPPI, is convex. (For CM, concave; for B&H, straight line).
Because of CPPI's convexity (curve, but not a straight line), but definition the curve's slope cannot be constant. That is, the tangent line of a curve is constantly changing.作者: dyga 时间: 2011-7-11 18:56
fwvagabond: I think I got it
As m changes in the equation ... stocks = M* assets - m*floor , the m*floor term (constant term) also changes. So this is not a straight line but a curve.
I also think Schweser made a mistake.
Thanks for pointing it out.作者: mar350 时间: 2011-7-11 18:56
You're most welcome.
Actually I wasn't 100% sure to begin with, that's why I posted the original message, just to see if anyone also got confused over it. But in discussing this over with you, I actually was able to "convince" myself that I was correct. It all worked out :-)作者: wake2000 时间: 2011-7-11 18:56
You are trying to compare two totally different things.
Payoff diagram with y-aixs is the total value of portfolio: ----> slope is not constant
v.s
the all the formula in the book with y as the value of stock --> slope is constant all the time作者: Zestt 时间: 2011-7-11 18:56
Now we are in 2011. Schweser didn't correct it. I re-post it with new page numbers.
Is this a typo or not?
Schweser notes 5, page 54, first bullet point in middle of page: "The slope of the line remains constant with CPPI".
Here the "line" refers to CPPI's Payoff diagram, which is Figure 12 on P59 . It's a convex diagram, so the slope changes at every point.
