A. A stock index is currently 990, the risk-free rate is 5%, the dividend yield on the index is 2%, and the volatility is 20% per annum. If you have a portfolio worth $50,000,000 and you are concerned that the market may fall during the next 6 months. The portfolio has a = 1.5 with respect to the index and each index point is worth $100. a) What index options and positions you should choose if you wish to protect your portfolio from losing no more than 10% of its current value? What is the cost of your hedging strategy (you may use the Black-Scholes formula to value the index option)? (30 marks) b) Examine the effectiveness of your hedging strategy. What are the advantages/disadvantages of using index futures, instead of using index options? (20 marks)