Options and Futures Hedge Performance Futures Price Options Price Delta Value of

Question

Options and Futures Hedge Performance Futures Price Options Price Delta Value of Short options Position Change in Value of Short option Position Long Position in Value Futures Contracts Change in Value of Long Futures Position Net Dail 9458 9375 9470 9385 9380 9360 9325 9335 9080 8980 8970 8935 8995 8860 8890 8930 8950 9153 9015 9080 270 55% 205 49% 237.5 56% 205 50% 182 4996 164.5 47% 135 44% 137.5 45% 60 24% 37.5 17% 25 13% 26 13% 25 14% 14 8% 10 7% 31-Jul-95 1-Aug-95 2-Aug.95 3-Aug.95 4-Aug.95 27000 20500 23750 20500 18200 16450 13500 13750 6500 3250 3250 2300 1750 950 49 56 4,565 4,655 1,935 4,7601,510 2,050 1,305 11,475 3,725 1,080 8-Aug-95 9-Aug 10-Aug-95 11-Aug-95 14-Aug-95 15-Aug-95 16-Aug-95 17-Aug-95 18-Aug-95 21-Aug-95 22-Aug-95 23-Aug-95 24-Aug-95 25-Aug-95 1,645 7750 2250 1250 24 3750 2500 2600 2500 400 1000 2,400 100 1100 455 780 1,890 880 500 1400 2150 200 120 2,639 2,622 13 13% 27 19% 1300 2700 472 3.5 4% Var Short position Var Long Position VAR Net Daily Variance 6561242.69 11,131,749 1,827,111 HE= (VAR on Short option P/L-VAR on net Daily P/L)/ VAR on short option P/L 0.72152974 or 72%

Explanation / Answer

Hedging effectiveness is the extent to which the purpose to hedge stands resolved. In a way, the higher the hedging effectiveness the more is the assurance of the riskless trade being made.

The factors that contribute to the discrepancy include absence of adequate information.

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