gms hedging simulation

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GMS Hedging Simulation Joe Braveheart and Kate Torelli, security analysts for Lion-Fund, have both identified a gold mining stock (ticker symbol GMS) as a particularly attractive, albeit risky, investment. Currently GMS stock sells for $100 Joe Braveheart would like to invest in GMS Stock alone. Kate Torelli is considering using put options to hedge against downside risk. She called an options trader at a large investment bank for quotes. The prices for three (European-style) put options are Put Option A Put Option B Put Option C Strike Price $95 $100 $105 Option Price $2.20 $6.40 $12.50 Kate consider a portfolio with the following weights: 88% GMS, 2% Option A, 1% Option B, 9% Option C Based on the analysis of historical returns, Joe and Kate assume that GMS Stock return is normally distributed, with mean 2% and standard deviation 18.33%. Evaluate Joe and Kate’s portfolios.

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GMS Hedging Simulation. Joe Braveheart and Kate Torelli, security analysts for Lion-Fund, have both identified a gold mining stock (ticker symbol GMS) as a particularly attractive, albeit risky, investment. Currently GMS stock sells for $100 - PowerPoint PPT Presentation

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Page 1: GMS Hedging Simulation

GMS Hedging Simulation

Joe Braveheart and Kate Torelli, security analysts for Lion-Fund, have both identified a gold mining stock (ticker symbol GMS) as a particularly attractive, albeit risky, investment. Currently GMS stock sells for $100

Joe Braveheart would like to invest in GMS Stock alone.

Kate Torelli is considering using put options to hedge against downside risk. She called an options trader at a large investment bank for quotes. The prices for three (European-style) put options are

Put Option A Put Option B Put Option C Strike Price $95 $100 $105Option Price $2.20 $6.40 $12.50

Kate consider a portfolio with the following weights: 88% GMS, 2% Option A, 1% Option B, 9% Option C

Based on the analysis of historical returns, Joe and Kate assume that GMS Stock return is normally distributed, with mean 2% and standard deviation 18.33%.

Evaluate Joe and Kate’s portfolios.