Five months ago an investor paid $1,050,000 of the US small-cap portfolio. The Russell 2000 index...
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Five months ago an investor paid $1,050,000 of the US small-cap portfolio. The Russell 2000 index¹ was 1750 when the position was purchased. By the 5th of October, the stock prices in the USA have risen so that the corresponding current index quote is 1870. Suggest a hedging strategy that makes the investor's overall position (i.e., the index portfolio and the possible pay-off from options) worth at least $1,090,000 at the expiry of option contracts. The contract size for the Russell 2000 index index options is 100 which implies that one contract is worth $(100 x strike price). The expiration date of the options is the third Friday of the expiration month. Strike price 1830 1860 1890 December puts 44.40 57.50 73.00 Five months ago an investor paid $1,050,000 of the US small-cap portfolio. The Russell 2000 index¹ was 1750 when the position was purchased. By the 5th of October, the stock prices in the USA have risen so that the corresponding current index quote is 1870. Suggest a hedging strategy that makes the investor's overall position (i.e., the index portfolio and the possible pay-off from options) worth at least $1,090,000 at the expiry of option contracts. The contract size for the Russell 2000 index index options is 100 which implies that one contract is worth $(100 x strike price). The expiration date of the options is the third Friday of the expiration month. Strike price 1830 1860 1890 December puts 44.40 57.50 73.00
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To suggest a hedging strategy that ensures the investors overall position is worth at least 1090000 ... View the full answer
Related Book For
Financial Accounting and Reporting a Global Perspective
ISBN: 978-1408076866
4th edition
Authors: Michel Lebas, Herve Stolowy, Yuan Ding
Posted Date:
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