Constant Proportion technology

Constant proportion technology was popular prior to the 2008 financial crisis, but has not been used since.
It has three main product types: CPPI (constant proportion portfolio insurance), DPI (dynamic portfolio insurance) and CPDO (constant proportion debt obligation). CPPI is a dynamic asset allocation framework that seeks to maximise portfolio returns within the constraint of providing full or partial principal protection. The basic concept of credit CPPI is to allocate an initial investment between a leveraged risky investment that will produce returns and an unleveraged �risk-free� investment that will guarantee principal repayment. The amount of portfolio capital allocated to the leveraged risky investment increases as the value of the total portfolio increases and declines as the value of the portfolio declines, hence the total leverage of the initial investment reacts dynamically to portfolio performance. DPI is an extension of the CPPI methodology that allows more flexibility with respect to leverage and the underlying exposure. DPI products allow leverage to shift as the riskiness of the underlying portfolio shifts or according to manager discretion, or both, and can accommodate a variety of management strategies (long, short, curve plays). CPDOs seek to place as much principal at risk as is necessary to achieve a capped upside in the form of a high and highly rated coupon. The difference in the ultimate aim of the product is reflected in its leverage mechanics: as the value of the portfolio declines (and the strategy becomes further from meeting its yield target), leverage increases and vice versa.