rebalancing strategies (insurance)

[sachin_patel]

Can someone explain below statement to me?
Thanks
Convex strategies represent the purchase of portfolio insurance, concave strategies the sale of portfolio insurance. That is, convex strategies dynamically establish a floor value while concave strategies provide or sell the liquidity to convex strategies.

 

[S2000magician]

When you think of portfolio insurance, you think of buying puts on an equity position to set a floor value.
CPPI – a convex strategy – does the same thing dynamically: it sets a floor value on the portfolio; that’s the portfolio insurance. It accomplishes this by decreasing its percentage of equity as the equity price falls, increasing its percentage of fixed income. Thus, to purchase portfolio insurance, CPPI needs to be able to sell equities when their price is falling (and buy equities when their price is rising).
Constant mix – a concave strategy –buys equities when their price is falling and sells them when their price is rising; it’s the counterparty to CPPI. As CPPI is buying portfolio insurance, constant mix must be selling it.