Financial Risk Manager Part 1

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Explanation:

The portfolio beta relative to the index is:

\beta_{p,i} = \rho_{p,i}\frac{\sigma_p}{\sigma_i} = 0.75 \times \frac{40\%}{20\%} = 1.50

One S&P 500 futures contract has a value of:

250 \times 1320 = 330{,}000

The number of contracts needed is:

N = \beta \times \frac{V_p}{V_f} = 1.5 \times \frac{55{,}000{,}000}{330{,}000} = 250

Because the manager wants to hedge a long equity exposure, the correct trade is to short 250 S&P futures contracts.

Explanation:

The portfolio beta relative to the index is:

\beta_{p,i} = \rho_{p,i}\frac{\sigma_p}{\sigma_i} = 0.75 \times \frac{40\%}{20\%} = 1.50

One S&P 500 futures contract has a value of:

250 \times 1320 = 330{,}000

The number of contracts needed is:

N = \beta \times \frac{V_p}{V_f} = 1.5 \times \frac{55{,}000{,}000}{330{,}000} = 250

Because the manager wants to hedge a long equity exposure, the correct trade is to short 250 S&P futures contracts.

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MManit

Last updated: April 18, 2026 at 11:32

a) Long 125 S&P futures contracts

b) Short 125 S&P futures contracts

c) Long 250 S&P futures contracts

d) Short 250 S&P futures contracts