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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.




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