You manage a $16.5 million portfolio, currently all invested in equities, and believe that the market is on the verge of a big but short-lived downturn. You would move your portfolio temporarily into T-bills, but you do not want to incur the transaction costs of liquidating and reestablishing your equity position. Instead, you decide to temporarily hedge your equity holdings with S&P 500 index futures contracts.
a. Should you be long or short the contracts? Why?
b. If your equity holdings are invested in a market-index fund, into how many contracts should you enter? The S&P 500 index is now at 1,650 and the contract multiplier is $250.
c. How does your answer to (b) change if the beta of your portfolio is .6?
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You manage a $16.5 million portfolio, currently all invested in equities, and believe that the marke...
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Mathematics, 23.06.2020 19:01
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