Investment banks push CPPI innovations
Creative thinkers are inventing new variations on Constant Proportion Protected Insurance to enable insurers to hedge guaranteed products and avoid the danger of a cash lock-out.
What is making a mainstream comeback in the world of insurers is Constant Proportion Protected Insurance (CPPI), which is an algorithm designed to hedge guarantees without using traditional options-based theory.
CPPI has been bouncing around the insurance market in Asia for several years, but no one really took an interest in it to hedge insurance-linked products until the market crashed in late 2008. Now it has gone full circle.
In a term-guaranteed product through the CPPI algorithm…
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