Standard deviation of the returns of the insurance portfolio

Assignment Help Financial Management

Reference no: EM13849165

Berkshire Hathaway Inc. (NYSE: BRK.A) would like to hedge its $5 million exotic insurance portfolio by using S&P 500 futures. Having heard about your excellent grades in the Derivatives class, Berkshire chairman Warren E. Buffett has hired you as a consultant to help construct this hedging trade. Mr. Buffett believes that the correlation between the returns of his insurance portfolio and that of index futures is -0.52. He also provides you that the standard deviation of the returns of the insurance portfolio and index futures is 5% and 2% respectively. Assuming that one contract of index futures has a value of $180,000 today, how many contracts should Mr. Buffett buy or sell for the best hedge?

Reference no: EM13849165

Questions Cloud

Index return for information using value-weighted index : Kirk, Inc. 35,000 shares outstanding, Price per share: $37 Beg of year, $42 End of year. Picard Co. 26,000 shares outstanding, Price per share: $84 Beg of year, $91 End of year. Calculate the index return for the information using a value-weighted in..

What is your philosophy in terms of quality and image : Develop and write your own personal mission statement. Be clear about your passion, values, goals, and philosophies - What is your philosophy in terms of quality and image and what are your core competencies and competitive advantages?

What are the best and worst case npvs? : What are the Best and Worst case NPVs?

What is the non-operating terminal cash flow of the machine : Lasalle Industries is considering the purchase of a new machine that will cost $250,000, plus an additional $10,000 to ship and install. The new machine will have a 5-year useful life and will be depreciated to zero using the straight-line method. Wh..

Standard deviation of the returns of the insurance portfolio : Berkshire Hathaway Inc. (NYSE: BRK.A) would like to hedge its $5 million exotic insurance portfolio by using S&P 500 futures. Having heard about your excellent grades in the Derivatives class, Berkshire chairman Warren E. Buffett has hired you as a c..

Discuss some business before during and after the games : Prepare Form 1040, Schedules A, C and SE for Form 1040, and Forms 2106 and 8829 for the 2013 year. (Assume no depreciation for this problem and that no estimated taxes were paid by the Larges.)

Presentation is about gandhi vs ford pinto : Presentation is about Gandhi vs Ford Pinto ( Comparison & Conflict ) it should be around 2 - 3 mintues talking about the comparison and conflict between Gandhi and Ford Pinto from the social responsibilty and any other topics. I also need only two..

Engineer specializing in athletic facilities : You're a consulting engineer specializing in athletic facilities, and you've been asked to help design the Olympic ski jump pictured in figure below. Skiers will leave the jump at 28 m/sand 9.5° below the horizontal, and land 55 m horizontally fro..

Draw the profit diagrams at maturity : Draw the profit diagrams at maturity for the following portfolios consisting of options. Clearly label all the important points in the diagrams.

User Account

All Pages