Question 68

A financial analyst works for a leading wealth management firm in its U.S. medium-to-large-cap department and manages a portfolio of $40 million. He is somewhat surprised by the recent rally in the stock market and believes this to be short-lived. He would therefore like to lock in two-thirds of the current portfolio value using S&P 500 futures. The S&P Index is trading at 6,200, whereas its futures are trading at 6,250. Each point of the S&P 500 futures is worth $250. The correlation between the analyst's portfolio and the S&P futures contract is 0.765; the volatilities of his portfolio and the futures are 0.3 and 0.2, respectively. How many futures contracts should he short to achieve this objective?