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You have just invested $50,000,000 in the AQR Multi-Asset Fund Class I (U.S), and you plan to hold the fund until mid-December 2021. You are

You have just invested $50,000,000 in the AQR Multi-Asset Fund Class I (U.S), and you plan to hold the fund until mid-December 2021. You are concerned that your investment is exposed to the volatile environment in the financial market especially when you plan to disinvest in mid-December. As a result, you plan to hedge your position using the S&P500 futures contract (its generic ticker is SP) that matures in mid-December 2021. In this assignment, your task is to extract data from Bloomberg, perform scenario analysis and complete all the tables below:

Information about the SPX and AQR fund on the day when you access Bloomberg:

Date1

SPX spot price2

AQR fund ticker3

Information about Dec2021-maturity SP futures contract on the day when you access Bloomberg:

Ticker4

Long/Short5

Futures Price6

Contract Value7

Beta8

# of contracts9

Contract value x # of contracts10

Information about the SPX, AQR fund and SP futures contract on maturity:

Scenario 1

Scenario 2

Scenario 3

Scenario 4

Scenario 5

SPX spot price (ST)11

-100

-50

0

+50

+100

Futures price (FT)12

ST + 2

ST + 2

ST + 2

ST + 2

ST + 2

Contract Value x# of contracts13

Payoff from closing-out futures14

% change in SPX spot15

% change in AQR hedge fund16

Terminal value of your investment in AQR hedge fund17

Deficit/surplus of your investment in AQR hedge fund18

Net payoff between fund deficit/Surplus and closing-out futures19

Table description:

  1. The date when you access Bloomberg
  2. SPX spot price on the day specified in note #1
  3. Bloomberg ticker for AQR Multi-Asset Fund Class I (U.S)
  4. Bloomberg ticker for Dec2021-maturity SP futures contract
  5. Whether you need to take a long or short futures position on the day specified in note #1
  6. Price of the Dec2021-maturity SP futures contract observed on the day specified in note #1
  7. Futures price (note #6) x $250 (multiplier for SP futures contract)
  8. Optimal hedge ratio i.e., raw beta computed from Bloomberg (see further notes below)

9. Number of contracts that you need to long/short on the day specified in note #1. Remember to round the number to the nearest integer

10. Note #7 x note #9

11. Suppose that the spot price specified in note #2 is 4000. Thus, ST= 4000 - 100 = 3900 for scenario 1, 3950 for scenario 2 etc.

12. Continue with the example illustrated in note #11: FT= 3902 for scenario 1, 3952 for scenario 2 etc. That is, assume that FT is 2 points higher than ST (i.e., FT = ST because you are expected to close-out the futures contract several days prior to its expiry)

13. FT x $250 x number of contracts specified in note #9

14. The difference between note# 10 and note #13. If you take a long (short) position in note #10, then you need to close-out by taking a short (long) position in note #13.

15. Percentage change in SPX spot (see note #2 and note #11)

16. Percentage change in AQR hedge fund (see note #8 and note #15)

17. Terminal value of your AQR hedge fund investment for each scenario (see note #16 and recall that the initial investment was $50mil)

18. Difference between note #17 and initial investment of $50mil

19. Difference between note #14 and note #18

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