Suppose a hedge fund follows the following strategy: Each month it holds $100 million of an S&P 500 Index fund and writes out-of-the- money put options on $100 million of the index with exercise price 5% lower than the current value of the index. Suppose the premium it receives for writing each put is $0.25 million, roughly in line with the actual value of the puts. The risk-free rate is 0.7% monthly. End of month S&P 500 End of month S&P 500 End of month S&P 500 End of month Sep-77 96.53 Apr-80 106.29 Nov-82 138.53 Jul-85 Oct-77 92.34 May-80 111.24 Dec-82 140.64 Aug-85 Nov-77 94.83 Jun-80 114.24 Jan-83 145.30 Sep-85 Dec-77 95.10 Jul-80 121.67 Feb-83 148.06 Oct-85 Jan-78 89.25 Aug-80 122.38 Mar-83 152.96 Nov-85 Feb-78 87.04 Sep-80 125.46 Apr-83 164.43 Dec-85 Mar-78 89.21 Oct-80 127.47 May-83 162.39 Jan-86 Apr-78 96.83 Nov-80 140.52 Jun-83 167.64 Feb-86 May-78 97.24 Dec-80 135.76 Jul-83 162.56 Mar-86 Jun-78 95.53 Jan-81 129.55 Aug-83 164.40 Apr-86 Jul-78 100.68 Feb-81 131.27 Sep-83 166.07 May-86 Aug-78 103.29 Mar-81 136.00 Oct-83 163.55 Jun-86 Sep-78 102.54 Apr-81 132.81 Nov-83 166.40 Jul-86 Oct-78 93.15 May-81 132.59 Dec-83 164.93 Aug-86 Nov-78 94.70 Jun-81 131.21 Jan-84 163.41 Sep-86 Dec-78 96.11 Jul-81 130.92 Feb-84 157.06 Oct-86 Jan-79 99.93 Aug-81 122.79 Mar-84 159.18 NOV-86 Feb-79 96.28 Sep-81 116.18 Apr-84 160.05 Dec-86 Mar-79 101.59 Oct-81 121.89 May-84 150.55 Jan-87 Apr-79 101.76 Nov-81 126.35 Jun-84 153.18 Feb-87 May-79 99.08 Dec-81 122.55 Jul-84 150.66 Mar-87 Jun-79 102.91 Jan-82 120.40 Aug-84 166.68 Apr-87 Jul-79 103.81 Feb-82 113.11 Sep-84 166.10 May-87 Aug-79 109.32 Mar-82 111.96 Oct-84 166.09 Jun-87 Sep-79 109.32 Apr-82 116.44 Nov-84 163.58 Jul-87 Oct-79 101.82 May-82 111.88 Dec-84 167.24 Aug-87 Nov-79 106.16 Jun-82 109.61 Jan-85 179.63 Sep-87 Dec-79 107.94 Jul-82 107.09 Feb-85 181.18 Oct-87 Jan-80 114.16 Aug-82 119.51 Mar-85 180.66 Feb-80 113.66 Sep-82 120.42 Apr-85 179.83 Mar-80 102.09 Oct-82 133.72 May-85 189.55 S&P 500 191.85 190.92 188.63 182.08 189.82 202.17 211.28 226.92 238.90 235.52 247.35 250.84 236.12 252.93 231.32 243.98 249.22 242.17 274.08 284.20 291.70 288.36 290.10 304.00 318.66 329.80 321.83 251.79 a. Calculate the Sharpe ratio the fund would have realized in the period October 1982- September 1987. (Do not round intermediate calculations. Round your answer to 3 decimal places.) X Answer is complete but not entirely correct. Sharpe ratio 11.322 x b. Now calculate the Sharpe ratio the fund would have realized if we extend the sample period by one month to include October 1987. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Sharpe ratio
