Question
Q5) On 9th March you decide to divest a segment of your fund portfolio by the end of the month. That segment corresponds to a
Q5) On 9th March you decide to divest a segment of your fund portfolio by the end of the month. That segment corresponds to a broadly held equity portfolio that closely follows the S&P200 Index i.e. the portfolio beta with the S&P200 Index is 1, and its current market value is $6.165m. Until the segment is liquidated, you attempt to fully hedge against downside risk using ASX S&P200 index futures (1 point = $25). Relevant details are:
| On 9th Mar | On 30th Mar | |
| Portfolio value | $6.165m | $5.84m |
| ASX S&P200 Index | 3322.6 | 3148.8 |
| ASX S&P200 Futures | 3349 | 3115 |
Describe in detail how you would construct a hedging position, assuming the above details occur on 30th March. a) Evaluate the outcome of your hedge. b) Carefully outline a possible reason (other than rounding up contracts) for a possible discrepancy between the spot and hedging positions.
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