通过股指期货对股票组合进行Beta对冲

Beta hedge an equity portfolio with futures contracts [Practice, FRM: Market]

Consider an equity portfolio with market value of USD 100M and a beta of 1.4 with respect to the S&P500 Index.

The current S&P500 Index is 700 (Friday February 27th, rounded) and each futures contract is for delivery of USD 250 times the index level.

Question #1:

Which trade will hedge the equity portfolio (i.e., reduce the net beta to zero)?

Question #2:

Which trade will reduce the beta of the equity portfolio to 0.8?

Question #3:

If we use instead CME E-mini S&P500 Futures (each futures contract is for delivery of USD 50 times the index level), what trade will reduce the beta of the equity portfolio to 0.8?

Answer:

All above three questions could be simply solved through the following Excel.

图片: Hedge Equity Beta

Please note in all cases, we want to short futures contracts in order to reduce the net portfolio (i.e., portfolio plus hedge position) beta.