A Strategy That Seeks to Insure the Value of a Portfolio

question 3

Multiple Choice

A strategy that seeks to insure the value of a portfolio through the use of a synthetic put option strategy is called dynamic hedging. Given that put options on stock indexes are available to portfolio managers, why should they bother with dynamic hedging? There are four reasons and one of these is ________.

• A) The size of the market for options on stock indexes is as large as that for stock index futures.
• B) Exchanges do not impose limits on the number of contracts in which an investor can have a position.
• C) Existing exchange-traded index options contracts are of longer maturity than the period over which some investors seek protection.
• D) The cost of a put option may be higher than the transactions costs associated with dynamic hedging.

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Definitions:

Macrosociology

The level of analysis that studies large-scale social structures in order to determine how they affect the lives of groups and individuals.

Conflict Theory

A social theory that views social life as a competition and focuses on the distribution of resources, power, and inequality.

Symbolic Interactionism

A sociological perspective focusing on how individuals interpret and give meaning to social symbols, interactions, and experiences.

Means of Production

The facilities, resources, and tools used to produce goods and services, often discussed in the context of societal roles and class distinctions.