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:

Academic Researchers

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A business strategy that involves consumers or clients in the creation process of new products or services, aiming to better meet their needs and enhance innovation.

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