Question
stock 1 stock 2 stock 3 stock 4 stock 5 stock 6 Average weekly return 0,006912 0,002916 0,002000 0,003753 0,002069 0,001774 Weekly variance 0,0025 0,0007
stock 1 | stock 2 | stock 3 | stock 4 | stock 5 | stock 6 | |
Average weekly return | 0,006912 | 0,002916 | 0,002000 | 0,003753 | 0,002069 | 0,001774 |
Weekly variance | 0,0025 | 0,0007 | 0,0006 | 0,0011 | 0,0007 | 0,0009 |
Current Prices | 533 | 999 | 175 | 50 | 60 | 110 |
Given the data above and the following parameters:
You have a long position of 12,000 shares of stock 1. You have to create a hedge portfolio to minimize future volatility
- 10M of capital is available
- You have to hold 12 ,000 shares of stock 1 (calculate the cost with given price)
-You can supplement these shares with either short or long holdings in any of the 5 stocks mentioned above
- You can use up to 50% of the va lue of the long positions as collateral to finance purchases or satisfy short margin requirements
- All short positions require 15% margin ( lower margin requirements apply for short positions that hedge long investments )
- The total notional amount of your p or tfolio cannot exceed $20 M (t his is the sum of the a bsolute values of each position; theoretically you could expand your portfolio virtually without limit by financing purchases with short sales.)
WHAT WOULD BE AN OPTIMAL HEDGING STRATEGY USING QUALTATIVE AND QUANTITATIVE METHODS?
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