How many dollars worth of the market-index portfolio

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Reference no: EM132055475

Suppose that JPMorgan Chase sells call options on $1.30 million worth of a stock portfolio with beta = 1.65. The option delta is .65. It wishes to hedge out its resultant exposure to a market advance by buying a market-index portfolio. Suppose it uses market index puts to hedge its exposure. Each put option is on 100 units of the index, and the index at current prices represents $1,000 worth of stock.

a. How many dollars’ worth of the market-index portfolio should it purchase to hedge its position (Omit the "$" sign in your response.)

Market index portfolio $

b. What is the delta a put option? (Round your answer to 2 decimal places. Negative amount should be indicated by a minus sign. Omit the "$" sign in your response.)

The delta a put option is

c. Complete the following: (Negative amount should be indicated by a minus sign. Omit the "$" sign in your response.)

Assuming the 1 percent market movement, JP Morgan should (Click to select)buysell put contracts. Assume a market movement of 1 percent.

Reference no: EM132055475

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