Constant Proportion Portfolio Insurance (CPPI) is a significant and highly popular investment strategy
within the structured product market. This has led to recent work which attempts to explain the
popularity of CPPI by showing that it is compatible with Cumulative Prospect Theory (CPT). We
demonstrate that this cannot explain the popularity of ratcheted CPPI products which lock-in gains
during strong growth in the portfolio. In this paper we conjecture that CPPI investors not only follow
CPT, but crucially that they also adapt their reference point over time. This important distinction
explains investors preference for ratcheted product
