I am new to the topic of Constant Proportion Portfolio Insurance, and have implemented it in
R for the first time.
Now if I calculate the cumulative return of the CPPI portfolio corresponding to different floors ($100$%, $95$%, ..., $0$%) i get the following result:
For $100$%, I obviously invest everything into a bond all the time, thus my return is the risk-free interest rate $r=1$%.
For $0$%, I invest everything into the risky market, yielding a return equal to that of the market $\mu=10$%.
Now in between both extremes, I do not quite understand the behaviour of the realized returns: They are negative for high floor values ($90$% - $60$%), but then suddenly become positive for floor $\le 40$% finally converging to $\mu$.
Why is that? Why doesn´t it interpolate, but drop off first?