Part 1. Suppose you need to hedge the risk in a stock portfoliothat your company owns in it's pension plan using the E-miniS&P500 futures contracts (which has a multiplier of 50). Thecurrent value of the portfolio is $325 million and the S&P500is currently at 2637.72 while the futures price (for next monthdelivery) is at 2643.25. You estimate that the "beta" of thisportfolio is 1.1 while the beta of the S&P500 is 1. Whatposition do you take in futures?
Part 2. In the above question suppose you want a tailed hedge.Now what position do you take in futures?
Part 3. In part 1 above suppose it is 1 month (1/12 of a year)until delivery of the futures and the 1-month interest rate is 3.5%per annum. Using the S&P500 index level and the futures pricewhat must the dividend yield on the S&P500 be in order topreclude arbitrage?
Part 1. Suppose you need to hedge the risk in a stock portfoliothat your company owns in it's pension plan using the E-miniS&P500 futures contracts (which has a multiplier of 50). Thecurrent value of the portfolio is $325 million and the S&P500is currently at 2637.72 while the futures price (for next monthdelivery) is at 2643.25. You estimate that the "beta" of thisportfolio is 1.1 while the beta of the S&P500 is 1. Whatposition do you take in futures?
Part 2. In the above question suppose you want a tailed hedge.Now what position do you take in futures?
Part 3. In part 1 above suppose it is 1 month (1/12 of a year)until delivery of the futures and the 1-month interest rate is 3.5%per annum. Using the S&P500 index level and the futures pricewhat must the dividend yield on the S&P500 be in order topreclude arbitrage?
