This chapter demonstrates how the options theory helped to prevent a stock portfolio from falling below an established level. The theory suggested that more portfolios would be sold when such portfolios start receding toward the established level. The chapter finds that less or no stock portfolios would be available for selling if the portfolios declined below the established level. The theory also provided quantitative guidance on how to achieve this objective in a way that reflected the desired result accurately. All economists and market analysts agreed that portfolio insurance would fail to protect stock portfolios from declining below the established level in the absence of jump protection.
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