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Investment Math edited untitled.md
almost 8 years ago
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Consider a portfolio which trades so as to keep the proportion of the risky asset at \(0 \lt \pi \lt 1\). A cppi overlay consists in protecting a certain level \(\underline{p}\) with I choose to set at \(1/2\) for illustration. I'll assume that the exposure to the risky asset is decreased linearly from \(\pi\) at \(p=1\) to zero at \(p=1/2\). This gives the following exposure to the portfolio:
\[\pi(p)=\pi-2(1-p),\, p \lt 1,\]
\[\pi(p)=\pi,\, p
\gte \gtq 1,\]