When the portfolio manager wants to hedge a stock portfolio using an index futures contract, he or she must know: 1) the total dollar value of the portfolio, 2) the current index futures price, and 3) the relative volatility of the portfolio to the market.

Question

Quizplus · Accepted Answer

This statement is true as these are the key factors that the portfolio manager needs to consider when hedging a stock portfolio using an index futures contract. The total dollar value of the portfolio and the current index futures price are necessary to calculate the number of futures contracts needed, while the relative volatility of the portfolio to the market is important for determining the appropriate hedge ratio.

When the Portfolio Manager Wants to Hedge a Stock Portfolio