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Constant Proportion Portfolio Insurance (CPPI)
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A portfolio insurance technique that exposes a constant multiple of a cushion over an investor's floor or 'insured' value to the performance of the risky asset. For example, an investor with a $100 portfolio, a floor of $90 and a multiple of 5 will allocate $50 (5 * ($100 - $90)) to the risky asset and the remaining $50 to the riskless asset. The investor will revise the exposures as the portfolio value changes. Unlike other portfolio insurance strategies, CPPI does not require the investor to specify a finite horizon. See also Portfolio Insurance, Floor (3).
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Glossary *
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