Question

Interpret the following: “Before hedging our stock portfolio with options on index futures, we search for...

Interpret the following: “Before hedging our stock portfolio with options on index futures, we search for the index that is most appropriate”.

Do you agree? Why or why not?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

We difinitely agree with the view that before hedging our stock portfolio with options on index futures, we search for the index that is most appropriate. The criteria we set is to find an index highly correlated to the specific portfolio we require to hedge.Like any portfolio consisted of multiple blue chip stocks, Dow Jones Industrial index can ba a good reference index. But same Dow Dow Jones Industrial index might not be appropriate for tech stocks dominated portfolio. Nasdaq Composite inde can be a better alternative in this case. Index and portfolio should have high correlation to go ahead with the stock portfolio hedging with options on index futures.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
If portfolio manager wants to hedge with a stock index futures, the optimal hedge is based...
If portfolio manager wants to hedge with a stock index futures, the optimal hedge is based on Beta. Very briefly state why “THE CAPM-BETA” may NOT be right to consider.  
The following is a compilation of the prices of KOSPI200 stock futures and options with a...
The following is a compilation of the prices of KOSPI200 stock futures and options with a remaining maturity of one month. Answer the following question: (The unit of gift and option prices in the table is the point. In addition, one point in the main stock futures and options markets on the exchange is calculated at $250,000.) Stock index futures 262.5 Stock index option Exercise Price Call Premium Put Premium 260 13.7 7.4 265 9.5 11.9 270 6.5 15.3 (1)...
A fund manager wishes to insure the minimum value of their stock portfolio against a fall...
A fund manager wishes to insure the minimum value of their stock portfolio against a fall in the value of the ASX 200 market index, but retain potential for a gain should the market index rise. Which of one the following option positions is best suited for their hedging needs? Select one: a. Sell put options on the ASX 200 index. b. Buy put options on the ASX 200 index. c. Sell futures contracts on the ASX 200 index. d....
As a stock portfolio manager, you have investments in many U.S. stocks and plan to hold...
As a stock portfolio manager, you have investments in many U.S. stocks and plan to hold these stocks over a long-term period. However, you are concerned that the stock market may experience a temporary decline over the next three months, and that your stock portfolio will probably decline by about the same degree as the market. You are aware that options on S&P 500 index futures are available. The following options on S&P 500 index futures are available and have...
As a stock portfolio manager, you have investments in many U.S. stocks and plan to hold...
As a stock portfolio manager, you have investments in many U.S. stocks and plan to hold these stocks over a long-term period. However, you are concerned that the stock market may experience a temporary decline over the next three months, and that your stock portfolio will probably decline by about the same degree as the market. You are aware that options on S&P 500 index futures are available. The following options on S&P 500 index futures are available and have...
We have the following investments in our portfolio: Investment                        Amount       &nbsp
We have the following investments in our portfolio: Investment                        Amount                              Expected Return              Beta A Stock                               $2,000                                 8%                                        .80 B Stock                               $2,500                                 12%                                     .95 C Stock                               $2,500                                 14%                                     1.20 D Stock                               $3,000                                 16%                                     1.50 What is the expected return on this portfolio? What is the beta of this portfolio? Does this portfolio have more or less systematic risk than an average asset? Please show your calculations.
Your manager tells you: “Most of our stock holders are large, non-profit institutions who are very...
Your manager tells you: “Most of our stock holders are large, non-profit institutions who are very activist towards their holdings. Our firm’s earnings look to be negative over the next few years, but I believe we will have a lot of good investment opportunities over the next few years. As a result, I think our payout should be low or zero for now.” Do you agree or disagree with your manager’s statement? Agree, because payout policy does not matter according...
The following three defense stocks are to be combined into a stock index in January 2016...
The following three defense stocks are to be combined into a stock index in January 2016 (perhaps a portfolio manager believes these stocks are an appropriate benchmark for his or her performance): Suppose that Douglas McDonnell shareholders approve a 3-for-1 stock split on January 1, 2017. Price Shares (millions) 1/1/16 1/1/17 1/1/18 Douglas McDonnell 545 $ 80 $ 83 $ 98 Dynamics General 460 70 63 77 International Rockwell 190 99 88 91 What is the new divisor for the...
The following three defense stocks are to be combined into a stock index in January 2016...
The following three defense stocks are to be combined into a stock index in January 2016 (perhaps a portfolio manager believes these stocks are an appropriate benchmark for his or her performance): Price Shares (millions) 1/1/16 1/1/17 1/1/18 Douglas McDonnell 350 $ 65 $ 69 $ 81 Dynamics General 450 25 19 33 International Rockwell 210 54 43 57 a. Calculate the initial value of the index if a price-weighting scheme is used. b. What is the rate of return...
The following three defense stocks are to be combined into a stock index in January 2016...
The following three defense stocks are to be combined into a stock index in January 2016 (perhaps a portfolio manager believes these stocks are an appropriate benchmark for his or her performance): Price Shares (millions) 1/1/16 1/1/17 1/1/18 Douglas McDonnell 415 $ 84 $ 89 $ 106 Dynamics General 225 23 16 30 International Rockwell 350 52 41 55 a. Calculate the initial value of the index if a price-weighting scheme is used. b. What is the rate of return...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT