Fisher Black manages the $60 million equity portion of Gamma Corporation's pension assets. In late August...

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Fisher Black manages the $60 million equity portion of Gamma Corporation's pension assets. In late August 2015 Gamma announced that it was downsizing its workforce and would be offering early retirement to many of the older employees. The impact on the portfolio Fisher manages would be an anticipated $10 million withdrawal over the next 4 months. The stock has been good for the past 5 years, but recently there have been signs of bearishness. Fisher is concerned about the drop is asset prices before the $10 million is withdrawn from the portfolio. Fisher runs a fairly aggressive portfolio with a beta, ß, of 1.2, relative to the S&P500 Index. The following were the prevailing S&P500 futures prices: Expiration Contract Value $250 Index 2088.50 2100.00 2110.50 SEP15 DEC15 MAR16 a) How much of the portfolio should Fisher have hedged? Justify your answer. b) Design a hedge based on your answer to part a) above. Fisher Black manages the $60 million equity portion of Gamma Corporation's pension assets. In late August 2015 Gamma announced that it was downsizing its workforce and would be offering early retirement to many of the older employees. The impact on the portfolio Fisher manages would be an anticipated $10 million withdrawal over the next 4 months. The stock has been good for the past 5 years, but recently there have been signs of bearishness. Fisher is concerned about the drop is asset prices before the $10 million is withdrawn from the portfolio. Fisher runs a fairly aggressive portfolio with a beta, ß, of 1.2, relative to the S&P500 Index. The following were the prevailing S&P500 futures prices: Expiration Contract Value $250 Index 2088.50 2100.00 2110.50 SEP15 DEC15 MAR16 a) How much of the portfolio should Fisher have hedged? Justify your answer. b) Design a hedge based on your answer to part a) above.

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