2. a) A pension fund has an equity portfolio that is worth $33,000,000 based on the yesterday's closing prices in New York Stock Exchange (NYSE). The portfolio consists of stocks quoted in NYSE and its market beta is 0.9. S&P 500 index is currently at 2 060 and the contract size for S&P 500 futures is 50 times the futures index number. al) How could the pension fund hedge against the stock market risk for the next 3 months with the futures contracts on S&P 500 index for which the bid and ask quotes are as follows (please remember to also tell whether the long or short position is appropriate for the required purpose): (max. 7 pts) bid ask highest lowest latest volume SPZ14 SPH15 SPM16 2052.50 2044.00 2036.00 2053.50 2046.00 2039.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 expiration date 2014-12-19 2015-03-20 2015-06-19 0 0 0 open interest 0 0 0 settlement price 0 0 0 a2) Estimate the 3-day 99% VaR for the portfolio assuming that its annual volatility calculated on the basis of weekly returns from the most recent 1-year time window is 31.75%. 2. a) A pension fund has an equity portfolio that is worth $33,000,000 based on the yesterday's closing prices in New York Stock Exchange (NYSE). The portfolio consists of stocks quoted in NYSE and its market beta is 0.9. S&P 500 index is currently at 2 060 and the contract size for S&P 500 futures is 50 times the futures index number. al) How could the pension fund hedge against the stock market risk for the next 3 months with the futures contracts on S&P 500 index for which the bid and ask quotes are as follows (please remember to also tell whether the long or short position is appropriate for the required purpose): (max. 7 pts) bid ask highest lowest latest volume SPZ14 SPH15 SPM16 2052.50 2044.00 2036.00 2053.50 2046.00 2039.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 expiration date 2014-12-19 2015-03-20 2015-06-19 0 0 0 open interest 0 0 0 settlement price 0 0 0 a2) Estimate the 3-day 99% VaR for the portfolio assuming that its annual volatility calculated on the basis of weekly returns from the most recent 1-year time window is 31.75%
