Dynamic Floor✓ Mathematical
◆ The PatternCPPI and OBPI — dynamic protection with a floor
Constant Proportion Portfolio Insurance (CPPI) dynamically allocates between a risky asset and a safe asset (cash/bonds) to protect a minimum floor:
Risky allocation = m × (Portfolio − Floor)
m is the multiplier (typically 3–5). As the portfolio falls toward the floor, the risky allocation shrinks. OBPI uses a put option to guarantee the floor directly. Gap risk is the main danger.
// Interactive — CPPI multiplier and portfolio path
Multiplier m
1987 crash. Program-trading-driven CPPI selling amplified Black Monday — a cautionary tale about mechanical hedging.
Pattern bridge: Dynamic allocation connects to Market Psychology on behavioral biases.