Question: Suppose the S P 500 currently has a level of 875

Suppose the S&P 500 currently has a level of 875. The continuously compounded return on a 1-year T-bill is 4.75%. You wish to hedge an $800,000 portfolio that has a beta of 1.1 and a correlation of 1.0 with the S&P 500.
a. What is the 1-year futures price for the S&P 500 assuming no dividends?
b. How many S&P 500 futures contracts should you short to hedge your portfolio? What return do you expect on the hedged portfolio?

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  • CreatedAugust 12, 2015
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