A company needs to hedge the purchase of an asset in two months using 3-month futures on a similar asset. The following ...

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IE 420 - A company needs to hedge the purchase of an asset in two months

April 14, 2018

  • A company needs to hedge the purchase of an asset in two months using 3-month futures on a similar asset. The following are historical data on the changes of the spot price of the asset the company needs to buy and the changes of the futures price in two-month periods. Determine the amount of the asset needed underlying the futures for each unit of the asset the company needs to purchase.

spot price change 0.50 0.61 -0.22 -0.35 0.79 0.04 0.15 0.70 -0.51 -0.41

futures price change 0.56 0.63 -0.12 -0.44 0.60 -0.06 0.01 0.80 -0.56 -0.46


A portfolio is currently worth $1 million and has a beta of 0.75. How can the portfolio manager use E-mini S&P 500 index futures to change the portfolio beta to 1.0 temporarily? Each E-mini S&P 500 index futures is on 50 indices. The current value of S&P 500 is 1250.


The current exchange rate is 1.6 USD/Euro. u= 1.05, d= 0.95, delta= 1. Risk free interest rates for USD and Euro are r = 5% and q= 4% , respectively. Price a 2-year at-the-money American put option.










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