a. Explain why you agree or disagree with the following statement by Gary Gastineau ("A Short History of Program Trading," Financial Analysts Journal, September-October 1991): Stock index futures and options were introduced in the early 1980s. Their introduction was partly a response to institutional portfolio managers' preference for trading portfolios rather than individual stocks and partly a way of reducing transaction costs in the implementation of asset-allocation and market-timing decisions.

b. In the same article, Gary Gastineau made the following statement: Long positions in stock index futures combined with short-term fixed income securities are an almost perfect substitute for a stock index portfolio. Conversely, selling futures contracts against a portfolio of stocks is a low-cost way to reduce market exposure. Explain the conditions that must hold for this statement to be true.