(12) Assume that you manage a portfolio of $1,500,000 and you wish to hedge against any...

  

Transcribed Image Text:

(12) Assume that you manage a portfolio of $1,500,000 and you wish to hedge against any potential loss in your portfolio value one month from now. One option you have is to trade the SP500 index futures contract. Suppose that the current level of the SP500 index is 2900 and it is available for a one-month futures contract settlement of 2950. Suppose that after one month, your portfolio value declines by 7% while the SP500 level declines by 11%. Carry out the required calculations to show your profit (loss) in S. (To answer: If profit=100, your write +100. If loss 100, you write -100) (12) Assume that you manage a portfolio of $1,500,000 and you wish to hedge against any potential loss in your portfolio value one month from now. One option you have is to trade the SP500 index futures contract. Suppose that the current level of the SP500 index is 2900 and it is available for a one-month futures contract settlement of 2950. Suppose that after one month, your portfolio value declines by 7% while the SP500 level declines by 11%. Carry out the required calculations to show your profit (loss) in S. (To answer: If profit=100, your write +100. If loss 100, you write -100)

Answer rating: 100% (QA)

To calculate the profit or loss in S the value of the SP500 index futures contract we need to consid... View the full answer