A portfolio is currently valued at $100m, and you wish to purchase put options on the portfolio to eliminate the possibility that the value goes below $100m in 6 months’ time while at the same time retain as much as possible of the up-side risk. The risk free interest rate is 3% per year, a 6-month call option is worth $16.48 per $100 worth of the underlying, and a 6-month put option is worth $15 per $100 worth of the underlying. Both options have an exercise price of $100. What are the details of your put-protection strategy? 

What is the value of your overall portfolio if the equity portfolio rises by 10%?

Answer rating: 100% (QA)

To eliminate the possibility that the portfolio value goes below 100m we need to purchase put option... View the full answer