Suppose that the date is 1st October 2007 and Josephine Rice, who is a London based pension fund manager, is managing a fund worth 100 million with a beta of 0.90. She is concerned about the performance of the market in the coming months as she must liquidate the fund to cover withdrawals on Friday February 29th 2008. She plans to hedge the value of the portfolio using the March 2008 contract on the FTSE 100 futures. She observes the March 08 FTSE futures contract trading at 6660.45 (on 1st October 2007). You will find the specifications for the FTSE futures trading on LIFFE (now ICE Futures Europe) at: https://www.theice.com/products/38716764/FTSE-100-Index-Future

The contract expires on 20 March 2008. On Friday 29th February when she closes her contract out the FTSE futures contract is trading at 6000.00 and the value of her portfolio has dropped to 85million. The performance of the FTSE100 index over the period 1st February 2007 to 1st May 2008 is depicted in the graph below: