Problem 1: Hedging market risk using S&P500 index futures Assume you have a portfolio worth currently $5,000,000. Let portfolio beta be Bp = 2. Assume you want to hedge market risk until 3 months from now. Current value of S&P500 index futures 3 month from now is 3,900.00. You are using mini futures i.e. $50 per point. a) If you want to completely remove market risk without using futures. What would you do? b) If you use S&P500 mini futures, how many futures you would buy to completely hedge your exposure to market risk. c) What would be the value of your new (i.e. hedged) portfolio when S&P500 goes up by 2% 3 months from now? d) What would be the value of your new portfolio when S&P500 declines by 3% 3 months from now. e) What should you do in a) if you want to change the of your portfolio approximately to B = 1? f) What should you do in b) if you want to change the of your portfolio approximately to B = 12 Problem 1: Hedging market risk using S&P500 index futures Assume you have a portfolio worth currently $5,000,000. Let portfolio beta be Bp = 2. Assume you want to hedge market risk until 3 months from now. Current value of S&P500 index futures 3 month from now is 3,900.00. You are using mini futures i.e. $50 per point. a) If you want to completely remove market risk without using futures. What would you do? b) If you use S&P500 mini futures, how many futures you would buy to completely hedge your exposure to market risk. c) What would be the value of your new (i.e. hedged) portfolio when S&P500 goes up by 2% 3 months from now? d) What would be the value of your new portfolio when S&P500 declines by 3% 3 months from now. e) What should you do in a) if you want to change the of your portfolio approximately to B = 1? f) What should you do in b) if you want to change the of your portfolio approximately to B = 12