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Problem 2 Mr. X currently holds 20,000 shares of a certain stock. The stock is currently trading at: $98.00 per share. He is interested in

Problem 2

Mr. X currently holds 20,000 shares of a certain stock. The stock is currently trading at: $98.00 per share.

He is interested in hedging against short-term movements in the market and decides to use eMini S&P 500futures to hedge his exposure.The Index is currently at: 3315 Contract size = $50 times index.

Beta of the Stock = 0.85.Calculate how many eMini S&P 500 futures contracts are needed to hedge the portfolio against downside price risk.Discuss your results.

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