FuturesHedging.BetaHedge Method 

Evaluates the number of index futures to sell (negative returned value) or buy (positive returned value) in order to hedge the risk from a well diversified stock portfolio constructed from the same index.

Parameters

portfolio

The value of the portfolio.

indexSize

The value of the assets underlying one index futures contract.

beta

The beta of the portfolio according to the capital asset pricing model which can be evaluated using PortfolioBeta.

Return Value

The exact number of (positive or negative) index futures contracts required to hedge the portfolio.

Remarks

Note: Once the portfolio is hedged by futures contracts the expected return over the period considered will be the equal to the risk free interest rate as implied by the Capital Asset Pricing model (CAPM) for a portfolio with no market risk. For further explanation concerning these issues please see the documentation for PortfolioBeta.

See Also

FuturesHedging Class | Futures Namespace