This thesis examines optimality conditions of portfolio insurance. To derive optimality conditions expected utility hypothesis is adopted. Analyses show that a simple portfolio insurance can not be optimal regardless of investment strategies. This is due to the incompatibility between kinked terminal payoff function of simple portfolio insurance and continuously differentiable utility function. However once portfolio insurance is generalized to be convex terminal payoff function portfolio insurance can be optimal under expected utility maximization scheme. Moreover portfolio insurance can play a role as an aggressive investment tool using leverage.
