Python for Finance

Options and Futures
Note that -1 means deep in recession, while 1 means the
economy is expanding.
4. Estimate the loss with and without a hedging strategy. What is the loss
of your portfolio? What is the gain if you short one future contract of
S&P500 future?
5. Repeat the whole processing that we have 1,000 shares of IBM, 2,000 shares
of DELL, and 5,000 shares of Citi Group, and 7,000 shares of IBM.
° ° What is the total market value today?
° ° What is the portfolio beta? [note: you can use the latest five-year
monthly data to estimate beta]
° ° If we want to hedge our portfolio by using S&P500 futures contracts,
how many contracts should we long (short)?
° ° If the market down by 5%, what is our portfolio loss and what is the
gain in terms of our hedging position?
The following formula is a general one:
Here, n is the number of contracts, β* is our target beta, VF is the value of one futures
contract. Vp and βp are defined previously. If n is positive (negative), it means a long
(short) position. In the preceding case for using S&P500 futures, VF=S&P500 index
level *250.
Think about market timing by using S&P500 futures to change
your portfolio beta for bad times.
Exercises
1. If the APR is 5% compounded quarterly, what is its equivalent continuously
compounded rate?
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