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Q.2 The principle of hedging is based on the positive correlation between futures prices and spot prices of financial instruments. (20pts) a) Demonstrate the optimal
Q.2 The principle of hedging is based on the positive correlation between futures prices and spot prices of financial instruments. (20pts) a) Demonstrate the optimal hedge ratio formula b) What position should an investor take and how many contracts should he trade assuming the following condition: - Value of the S&P500 index: 1161 - Portfolio value: $5.25M - Wallet Beta: 1.25 - Value of the underlying (mini-SP&500): 50 * value of the index
Q.2 The principle of hedging is based on the positive correlation between futures prices and spot prices of
financial instruments. (20pts)
a) Demonstrate the optimal hedge ratio formula
b) What position should an investor take and how many contracts should he trade assuming the
following condition:
- Value of the S&P500 index: 1161
- Portfolio value: $5.25M
- Wallet Beta: 1.25
- Value of the underlying (mini-SP&500): 50 * value of the index
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