What is a collar strategy and how does it work

Reference no: EM131501024

Assignment

You have to answer the following 5 questions:

Q1: What is a collar strategy and how does it work?

Q2: Construct a collar strategy with at-the-money calls and at-the-money puts using the historical data in case Exhibit 3. Back-test what would have been the growth in value of a $1 invested from the start of December 1990 to the end of December 2007 following this strategy. See case Exhibit 2 for details on a collar strategy. Plot it against the monthly growth in value of $1 in the HFRX EH: Equity Market Neutral Index (HFRI EH), the S&P 500 Index, and in one-month Treasury bills (T-bills). What do you conclude? What would have been the Sharpe ratio of this strategy?

Q3: Now do the same but with a collar strategy with OTM calls (with strikes equal to 105% of the current value of the S&P 500 Index) and OTM puts (with strikes equal to 95% of the current value of the S&P 500 Index). What would have been the growth in the value of $1 following this strategy? And what would have been the Sharpe ratio?

Q4: Can you get a fixed-strike rule for the "moneyness" of the call and put options on the collar strategy so you can match the growth in the value of $1 experienced by the Fairfield Guard hedge fund? A fixed-strike rule means that you should keep the moneyness (the percentage that makes the strikes for the call and put options to be OTM) held constant over time.

Q5: What are your observations? What do you conclude?

Attachment:- Exhibits.rar

Reference no: EM131501024

Questions Cloud

Develop the companys branding and distribution strategy : Develop the company's branding, pricing, and distribution strategy.Classify the company's major competitors as inter- or intra-competitors.

What is the probability that a subscriber rented : What is the probability that a subscriber rented a car during the past 12 months for business or personal reasons?

Calculate the average rate of return for each year : Calculate the average rate of return for each year from the above information. The annual rate of return at the end of year 3 is what percent?

Successful free throws a professional basketball : Let x be a random variable that represents the percentage of successful free throws a professional basketball player makes in a season.

What is a collar strategy and how does it work : What is a collar strategy and how does it work? What do you conclude? What would have been the Sharpe ratio of this strategy?

Confidence interval to test the hypothesis : If we use this confidence interval to test the hypothesis that µTop - µFront = 0, what's the corresponding alpha level?

What type of content you would recommend for your brand : Starting with your company's website, begin by identifying all of the social media sites and company blogs that you can.

What is the amount to use as the annual sales figure : What is the amount to use as the annual sales figure when evaluating this project?

What is the ytm to maturity to the bondholders : What is the YTM to maturity to the bondholders in December of 2005?

User Account

All Pages