9 - Chapter Nine Stock Index Futures Answers to Problems...

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Chapter Nine Stock Index Futures Answers to Problems and Questions 1. Theoretically, the more securities in a portfolio, the less the unsystematic risk. Most users of stock index futures as a hedge do so in order to reduce systematic risk. Because of the Nasdaq’s substantial technology/dot.com/Internet exposure, an insurance company portfolio is likely to have more in common with the S&P 500 than with the Nasdaq 100. 2. The deterioration of the basis does work to the advantage of the short seller. If you are long a contract, the deterioration of basis will be to your detriment. It seems, then, that the statement has some merit. It is important to note, though, that the deterioration of the basis is not “free money” to the short seller and that market movements after the first delivery month can result in substantial losses on the other leg of the spread. It is also dangerous to say that any investment strategy is “usually a winner.” Price movements in the underlying index or sharp
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9 - Chapter Nine Stock Index Futures Answers to Problems...

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