Suppose that JPMorgan Chase sells call options on $1.25 million worth of a stock portfolio with beta = 1.5. The option delta is .8. It wishes to hedge its resultant exposure to a market advance by buying a market-index portfolio.a. How many dollars’ worth of the market-index portfolio should it purchase to hedge its position?b. Now it decides to use market index puts to hedge its exposure. Should it buy or sell puts? How many? The index at current prices represents $1,000 worth of stock.

Suppose that JPMorgan Chase sells call options on $1.25 million worth of a stock portfolio with beta = 1.5. The option delta is .8. It wishes to hedge its resultant exposure to a market advance by buying a market-index portfolio.a. How many dollars’ worth of the market-index portfolio should it purchase to hedge its position?b. Now it decides to use market index puts to hedge its exposure. Should it buy or sell puts? How many? The index at current prices represents $1,000 worth of stock.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 25P

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