Please refer to the following articles:
Black, F., M. Scholes, 1973, The pricing of options and corporate liab ilities, Journal of Political Economy 81,3,637-654, https://www.cs.princeton.edu/courses/archive/fall09/cos323/papers/black_scholes73.pdf
Cox, J. C., Ross, S. A., Rubinstein, M, 1979, Option pricing: A simplified appro ach, Journal of Financial Economics, 7(3), 229-263, http://www.sciencedirect.com/science/article/pii/0304405X79900151
Portfolio insurance is a method of hedging a portfolio of stocks against market risk by short selling stock index futures. This hedging technique is frequently used by institutional investors when the market direction is uncertain or volatile. Assume that you manage one of the industry portfolios with a current value of $50 million. If you expect the whole market to be quite volatile in next three months--in other words, the market might go down significantly--what might be our choices at the...