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Suppose you’re a hedge fund manager responsible for a $3 billion equity portfolio. You’ve decided to...

Suppose you’re a hedge fund manager responsible for a $3 billion equity portfolio. You’ve decided to use index futures to change the beta of the portfolio from 1.2 to 0.8. Suppose the current value of one index futures contract is $750,000 and the continuously compounded risk-free interest rate is 7%. How many contracts should you short?

Solutions

Expert Solution

Number of contracts to short = (0.80 - 1.20)(3,000,000,000/750,000)

Number of contracts to short = -1,600

So,

1,600 contracts need to be

jeff jeffy answered 2 years ago
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