The content of this research paper falls into the category of the financial engineering theory. The Portfolio Insurance, which has been advocated jointly by M. Rubinstein and H. Leland in 1981, is the application of no-arbitrage for risk handling in financial engineering, an important strategy for hedging against risks on the part of investors, as well as the most immediate application of the insurance in security investment, aiming to set a bottom line for the portfolio value while retaining the opportunity to seek profit from the positive market fluctuation. With options, futures and other financial derivatives, the portfolio insurance can hedge against and transfer risks. It gives full displace to the basic theories and technical methods of such financial engineering as synthetic replication, risk dynamic hedge and non-profitable equilibrium, etc.Prior to the market crash of October 27, 1987, researches on the portfolio insurance mainly focused on how to hedge against the risks of stock market and on its application in the hedging. These researches included the modification of imposed limitation on the ultimate wealth to the Merton model, studies on the portfolio insurance transaction charges, complete dynamic of the market, realization of the insurance, and impact of the fluctuation rate estimation on the portfolio insurance, etc. After the collapse of stock markets in October 1987, investment institutions all set out to re-evaluate the applicability of the portfolio insurance strategies. At the same time, the negative influences of the portfolio insurance have drawn more and more attentions. Researches in this effort have also begun to bear fruits.But still there is much work to be further studied and perfected in the portfolio insurance theories, including the optimization of the portfolio insurance model, the influence of investors' risk preference on the optimum strategy of the portfolio insurance, the relation between the risk capital volatility and the cost and revenue of the portfolio, researches on the influence of various risk capital flows on the effectiveness of insurance, and researches on the risk of the portfolio insurance. In China, due to the limited financial derivatives, investors have access only to the strategy of dynamic portfolio insurance to hedge against risks. As a...
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