Lecturer, Institute of Excellence in Management Science, Hubli, Karnataka, India
Online published on 9 August, 2013.
Portfolio insurance has become a craze among institutional investors: over the past ten years, the value of assets managed under this strategy has grown from zero to more than 50 billion dollars. Asset management firms and insurance companies often use the CPPI methodology to offer capital protection products to investors. Risk-averse investors prefer capital protection products – those that offer downside protection with some upside potential. The Constant Proportion Portfolio Insurance (CPPI) is an asset allocation strategy used for structuring such products. This article explains CPPI and shows how the strategy compares with traditional capital-protection products. It also discusses the application of CPPI to new-generation products.
