Today's date is May 06, 2015

2. a) A pension fund has an equity portfolio that is worth $39,712,500 based on the yesterday's closing prices in New York Stock Exchange (NYSE). The portfolio consists of stocks quoted in NYSE and its market beta is 0.8. S&P 500 index is currently at 2 118 and the contract size for S&P 500 futures is 50 times the futures index number. al) How could the pension fund hedge against the stock market risk for the next 6 months with the futures contracts on S&P 500 index for which the bid and ask quotes are as follows (please remember to also tell whether the long or short position is appropriate for the required purpose): (max. 7 pts) bid ask highest lowest latest volume 0.00 0.00 SPM15 SPU15 SPZ15 2112.50 2113.50 2103.00 2105.00 2095.00 2100.00 expiration date 2015-06-19 2015-09-18 2015-12-18 0.00 0.00 0.00 open Interest 0 0 0 0.00 0.00 settlement price 0 0 0 0 0 0 0.00 0.00 a2) Estimate the 5-day 95% VaR for the portfolio assuming that its annual volatility calculated on the basis of weekly returns from the most recent 1-year time window is 31.75%. 2. a) A pension fund has an equity portfolio that is worth $39,712,500 based on the yesterday's closing prices in New York Stock Exchange (NYSE). The portfolio consists of stocks quoted in NYSE and its market beta is 0.8. S&P 500 index is currently at 2 118 and the contract size for S&P 500 futures is 50 times the futures index number. al) How could the pension fund hedge against the stock market risk for the next 6 months with the futures contracts on S&P 500 index for which the bid and ask quotes are as follows (please remember to also tell whether the long or short position is appropriate for the required purpose): (max. 7 pts) bid ask highest lowest latest volume 0.00 0.00 SPM15 SPU15 SPZ15 2112.50 2113.50 2103.00 2105.00 2095.00 2100.00 expiration date 2015-06-19 2015-09-18 2015-12-18 0.00 0.00 0.00 open Interest 0 0 0 0.00 0.00 settlement price 0 0 0 0 0 0 0.00 0.00 a2) Estimate the 5-day 95% VaR for the portfolio assuming that its annual volatility calculated on the basis of weekly returns from the most recent 1-year time window is 31.75%