Rebalancing strategies: CIPP

Hi, What happens if m * (Portfolio value - Floor) > Portfolio value ? Do we borrow at RFR to invest in stocks ? Thanks, Bern

never saw it referred this way but I would guess yes.

how can that even be possible unless your floor is negative? if portfolio is 100 and floor is any positive number then port value minus the floor can never be > than the portfolio value of 100

it could happen- your cushion imagine the M at 125 or 130%. that is a great question. doubt we’d ever see that scenario on the test, but yeah, wonder if you’d just fully invest the portfolio or actually go so far as to lever up.

The book doesn’t tell much about it, but I think the floor will be adjusted to a higher level if the stock return has been up a lot.

The maximum you can reach is m*(Portfolio value - floor) = Portfolio value. At that point all your portfolio is invested in stocks.