Hey,
I’m having a hard time with the CPPI vs constant mix based on their graphs. The constant mix has a concave curve whereas the cppi is convex. It seems conterintuitive to me since the utility curves are usually concave for risk averse and convex for risk seeking - opposite holds true here - since the cppi is like buying insurance and the constant mix is like selling it.
Can anyone shed light on this?
The way I see the risk profile in these two cases is the following: - Constant Mix: Risk varies proportionally according to level of wealth -> i.e.: willing to buy stocks at any time - CPPI: Risk varies MORE THAN proportionally of level of wealth -> i.e.: willing to increase stocks allocation if appreciate in value The chart Concave vs. Convex is the interpretation of these risk profiles. I’m not so sure about your point on insurance, though.