Suppose that JPMorgan Chase sells call options on $2.40 million worth of a stock portfolio with beta = 1.50. The option delta is 0.55. It wishes to hedge its resultant exposure to a market advance by buying a market-index portfolio. Suppose it use market index puts to hedge its exposure. The index at current prices represents $2,000 worth of stock and the contract multiplier is 400. Required: How many dollars’ worth of the market-index portfolio should it purchase? What is the delta of a put option? Complete the following:
Suppose that JPMorgan Chase sells call options on $2.40 million worth of a stock portfolio with beta = 1.50. The option delta is 0.55. It wishes to hedge its resultant exposure to a market advance by buying a market-index portfolio. Suppose it use market index puts to hedge its exposure. The index at current prices represents $2,000 worth of stock and the contract multiplier is 400. Required: How many dollars’ worth of the market-index portfolio should it purchase? What is the delta of a put option? Complete the following:
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Suppose that JPMorgan Chase sells call options on $2.40 million worth of a stock portfolio with beta = 1.50. The option delta is 0.55. It wishes to hedge its resultant exposure to a market advance by buying a market-index portfolio. Suppose it use market index puts to hedge its exposure. The index at current prices represents $2,000 worth of stock and the contract multiplier is 400.
Required:
- How many dollars’ worth of the market-index portfolio should it purchase?
- What is the delta of a put option?
- Complete the following:
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