You have to answer the following 5 questions: Q1: What is a collar strategy and how does it work? Q2: Construct a collar strategy with at-the-money calls and at-the-money puts using the historical data in case Exhibit 3. Back-test what would have been the growth in value of a $1 invested from the start of December 1990 to the end of December 2007 following this strategy. See case Exhibit 2 for details on a collar strategy. Plot it against the monthly growth in value of $1 in the HFRX EH: Equity Market Neutral Index (HFRI EH), the S&P 500 Index, and in one-month Treasury bills (T-bills). What do you conclude? What would have been the Sharpe ratio of this strategy? Q3: Now do the same but with a collar strategy with OTM calls (with strikes equal to 105% of the current value of the S&P 500 Index) and OTM puts (with strikes equal to 95% of the current value of the S&P 500 Index). What would have been the growth in the value of $1 following this strategy? And what would have been the Sharpe ratio? Q4: Can you get a fixed-strike rule for the \u201cmoneyness\u201d of the call and put options on the collar strategy so you can match the growth in the value of $1 experienced by the Fairfield Guard hedge fund? A fixed-strike rule means that you should keep the moneyness (the percentage that makes the strikes for the call and put options to be OTM) held constant over time. Q5: What are your observations? What do you conclude?<\/p>\n","protected":false},"excerpt":{"rendered":"
You have to answer the following 5 questions: Q1: What is a collar strategy and how does it work? Q2: Construct a collar strategy with at-the-money calls and at-the-money puts using the historical data in case Exhibit 3. Back-test what Read More …<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-119627","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts\/119627","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/comments?post=119627"}],"version-history":[{"count":0,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts\/119627\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/media?parent=119627"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/categories?post=119627"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/tags?post=119627"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}