Portfolio Insurance Strategies for CBOE's Volatility Index (VIX) Futures

Financial engineering is the utilization of mathematical techniques to analyse, predict, anticipate, and prevent financial market failures. It carries different meanings with respect to different sectors. It utilizes puppets and knowledge from the areas of computer science, statistics, political economy and applied mathematics to address current financial topics as easily as to formulate novel and innovative financial products. It is sometimes cited to as quantitative analysis and is practiced by regular commercial banks, investment banks, insurance offices and hedge funds. Financial engineering has led to the explosion of derivative trading that we experience today. Since the Chicago Board Options Exchange was formed in 1973 and two of the first financial engineers, Fischer Black and Myron Scholes, published their option pricing model, trading in options and other derivatives has grown dramatically. This report analyses the role of different option trading strategies as an efficient tool in Financial Engineering which are utilized as an efficient instrument for managing risk in both bullish and bearish markets.A secondary goal of this research is to introduce and evaluate an optimized set of dynamic portfolio insurance models under the condition of continuous time, based on Meton's optimal investment-consumption model, which combined the method of replicating dynamic synthetic put option using risk-free and risk assets. A practical application of such technique is to help alleviate investor's individual time-continuous dynamic portfolio insurance decision problems. Finally, we will compares the difference of strategies between this model and Merton model