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Optimal Hedge Ratio

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You wish to hedge 90 percent of the current portfolio value with futures. The value of the portfolio is $50 million and tracks the S&P 500 index. The index is 1,076.32 ($250 per point) and the portfolio has a beta of 1.2. Calculate the appropriate hedge using futures contracts.

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The solution calculates the appropriate hedge using futures contracts.

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You wish to hedge 90 percent of the current portfolio value with futures. The value of the portfolio is $50 million and tracks the S&P 500 index. The index is 1,076.32 ($250 per point) and the ...

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