You have a position in 200 shares of a technology stock with an annualized standard deviation of changes in the price of the stock of 30. Say that you want to hedge this position over a one-year horizon with a technology stock index. Suppose that the index value has an annual standard deviation of 20. The correlation between the two annual changes is 0.80. How many units of the index should you hold to have the best hedge? Use the same data as presented above to compute the hedge ratio using regression analysis, again using Excel. Explain why the values are different from what you obtained above.
You have a position in 200 shares of a technology stock with an annualized standard deviation of changes in the price of the stock of 30. Say that you want to hedge this position over a one-year horizon with a technology stock index. Suppose that the index value has an annual standard deviation of 20. The correlation between the two annual changes is 0.80. How many units of the index should you hold to have the best hedge? Use the same data as presented above to compute the hedge ratio using regression analysis, again using Excel. Explain why the values are different from what you obtained above.
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
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Transcribed Image Text:You have a position in 200 shares of a technology stock
with an annualized standard deviation of changes in the
price of the stock of 30. Say that you want to hedge this
position over a one-year horizon with a technology stock
index. Suppose that the index value has an annual
standard deviation of 20. The correlation between the two
annual changes is 0.80. How many units of the index
should you hold to have the best hedge?
Use the same data as presented above to compute the
hedge ratio using regression analysis, again using Excel.
Explain why the values are different from what you
obtained above.
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