Problem 1 Suppose that a portfolio is worth $60 million and the S&P 500 is at 1200. If the value of the portfolio mirrors the value of the index, what options should be purchased to provide protection against the value of the portfolio falling below $54 million in one year's time? The value of portfolio mirrors the value of the index, any decrease in the value of the index will result in the decrease in the value of the portfolio. Here the value of the portfolio is tailing by 10% to $54 million in one year's time, therefore, they should purchase a put option to protect against this potential downfall. The exercise price of the put option should be 10% below its current index value that is 1080