You are the boss of $500 million equity portfolio with a beta of 0.6 and concerned about the market retracing to 2020 lows by Sep. You have an good quant division the can help you price any instrument. You can use SPX options or future to manager your risk. If the market did retrace to those lows, 1. How many futures would you need to have a return of 0% over the period 2. How many put options would you need to have a return of 0% over the period (you have to find the optimal strike)
You are the boss of $500 million equity portfolio with a beta of 0.6 and concerned about the market retracing to 2020 lows by Sep. You have an good quant division the can help you price any instrument. You can use SPX options or future to manager your risk. If the market did retrace to those lows, 1. How many futures would you need to have a return of 0% over the period 2. How many put options would you need to have a return of 0% over the period (you have to find the optimal strike)
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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Transcribed Image Text:You are the boss of $500 million equity portfolio
with a beta of 0.6 and concerned about the market
retracing to 2020 lows by Sep. You have an good
quant division the can help you price any
instrument. You can use SPX options or future to
manager your risk. If the market did retrace to
those lows,
1. How many futures would you need to have a
return of 0% over the period
2. How many put options would you need to have
a return of 0% over the period (you have to find
the optimal strike)
3. If you were wrong, and the market went up in
value, what is the breakeven upside price to the
SPX that would result in the put strategy
outperforming the futures strategy.
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