Portfolio insurance was the computer-based trading strategy widely blamed for worsening the 1987 Wall Street Crash.
The strategy used mathematical models to reduce exposure to falling markets, often by selling stock-index futures as prices declined. Those sales were intended to protect portfolios, but many institutions followed similar rules at the same time.
On October 19, 1987, the Dow Jones Industrial Average fell 22.6%, its largest one-day percentage decline. The synchronized selling added pressure to an already stressed market, although later studies concluded that portfolio insurance was one factor among several, not the sole cause.
The crash also exposed weaknesses in market coordination and order processing. Regulators subsequently introduced or strengthened circuit breakers, which can temporarily halt trading during exceptionally rapid declines.