Which of the following is not an input needed to calculate the number of stock index futures contracts required to hedge a stock portfolio?
a. the value of the stock portfolio
b. the beta of the stock portfolio
c. the contract value of the index futures contract
d. the initial margin required for each futures contract
This is a combination of different stocks to form a portfolio. Stock index futures are are used to hedge the risk that is inherent in the portfolio without having to sell the stocks themselves. The value,beta and futures price helps us in calculating the number of futures required to hedge the portfolio.
Answer and Explanation:
d. the initial margin required for each futures contract The initial margin is not required in calculating the futures required for hedging a position. Initial margin is the amount of money deposited by an investor with the clearing house when he wishes to take a position in the market. The amount helps in the process of marking to market.
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from Finance 305: Risk ManagementChapter 3 / Lesson 8