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A Portfolio Manager in Charge of a Portfolio Worth $10

question 7

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A portfolio manager in charge of a portfolio worth $10 million is concerned that stock prices might decline rapidly during the next six months and would like to use options on an index to provide protection against the portfolio falling below $9.5 million. The index is currently standing at 500 and each contract is on 100 times the index. What position is required if the portfolio has a beta of 1?


Definitions:

Brightness

The intensity of light energy perceived as a color; based on amplitude of light wave.

Color

A characteristic of visual perception described through hues such as red, blue, and yellow, significantly influenced by an object's spectral composition and lighting conditions.

Sensory Adaptation

The process by which sensory receptors become less sensitive to constant stimuli over time.

Sensory Receptor Cells

Specialized cells that convert external stimuli from the environment into internal electrical impulses for the nervous system.

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