Portfolio insurance was the computer-driven trading strategy widely blamed for amplifying the 1987 Black Monday stock-market crash.
Portfolio insurance used mathematical rules and futures markets to reduce exposure as prices fell. In principle, the strategy was intended to limit losses. In a rapidly declining market, however, its rules could require increasingly large sales, reinforcing downward momentum. Similar automated responses across many portfolios created concern that computer-guided trading had made a temporary decline more severe.
The crash had no single universally accepted cause. Market valuations, interest-rate worries, a widening trade deficit, and international financial tensions all formed part of the background. Portfolio insurance became the most recognizable technological explanation because it connected programmed selling with the speed of the collapse.
After Black Monday, exchanges and regulators examined market structure more closely. Circuit breakers were developed to pause trading when prices moved too far or too quickly. Later research has treated portfolio insurance as one contributor among several, rather than proof that computers alone caused the crash.