Cushion Management

Cushion management involves the active monitoring and adjustment of the gap between the total portfolio value and the floor value. The cushion is the primary resource for risk-taking in a CPPI strategy.

If the cushion grows, the strategy can increase exposure to the risky asset. If the cushion shrinks, the strategy must deleverage to ensure the floor is protected.

This management requires precise tracking of asset performance and timely execution of rebalancing trades. It is the core operational task of the CPPI manager.

Factors such as transaction fees and market impact must be accounted for in cushion calculations. Effective management ensures the strategy remains functional throughout different market cycles.

It is a balance of aggression and caution.