Question
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 |
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SPX spot price2 |
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AQR fund ticker3 |
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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 |
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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 |
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Payoff from closing-out futures14 |
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% change in SPX spot15 |
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% change in AQR hedge fund16 |
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Terminal value of your investment in AQR hedge fund17 |
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Deficit/surplus of your investment in AQR hedge fund18 |
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Net payoff between fund deficit/Surplus and closing-out futures19 |
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Table description:
- The date when you access Bloomberg
- SPX spot price on the day specified in note #1
- Bloomberg ticker for AQR Multi-Asset Fund Class I (U.S)
- Bloomberg ticker for Dec2021-maturity SP futures contract
- Whether you need to take a long or short futures position on the day specified in note #1
- Price of the Dec2021-maturity SP futures contract observed on the day specified in note #1
- Futures price (note #6) x $250 (multiplier for SP futures contract)
- 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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