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Constant Proportion Portfolio Insurance or CPPI is a capital guarantee derivative security that embeds a dynamic trading strategy in order to provide participation to the performance of a certain underlying. See also Dynamic Asset Allocation

In order to be able to guarantee the capital invested, the option writer (option seller) needs to buy a zero coupon bond and use the proceeds to get the exposure he wants. While in the case of a bond+call case, the client would only get the remaining proceeds (or initial cushion) invested in an option, bought once and for all, the CPPI provides leverage through a multiplier. For example, say an investor has a $100 portfolio, a floor of $90 (price of the bond to guarantee his $100 at maturity) and a multiple of 5. Then on day 1, the writer will allocate $50 (5 * ($100 - $90)) to the risky asset and the remaining $50 to the riskless asset (the bond). The exposure will be revised as the portfolio value changes, i. UK Insurance - Insurance Quotes Online - Moneynetcouk. e. when the risky asset performs and with leverage multiplies by 5 the performance (or vice versa). Same with the bond. These rules are predifined and agreed once and for all during the life of the product.

Some definitions

Being a capital guarantee product, the CPPI embeds a bond. The bond floor is the value below which the CPPI value should never fall in order to be able to ensure the payment of all future due cash flows (including notional guarantee at maturity)

Unlike a regular bond + call strategy which only allocates the remaining dollar amount on top of the bond value (say the bond to pay 100 is worth 80, the remaining cash value is 20), the CPPI leverages the cash amount. Offers term life insurance and quotes with detailed policy information.