An institutional investor has an equity portfolio that is worth 15 M€ based on the yesterday’s closing prices in OMX Helsinki Stock Exchange. The portfolio consists of Finnish stocks and its market beta is 0.8. The OMX Helsinki 25 index is currently at 3 400 and the contract size is 10 times index number.
a) How could the investor hedge against the stock market risk for the next 6 months with the futures contracts on OMX Helsinki 25 index for which the bid and ask quotes in Eurex Exchange are as follows:
bid ask highest lowest latest Expiration date volume Open interest Settlement price
FFOX122017 3379.00 3381.00 0.00 0.00 0.00 2017-12-15 0 0 0
FFOX032018F 3320.00 3323.00 0.00 0.00 0.00 2018-03-16 0 0 0
FFOX062018F 3295.00 3300.00 0.00 0.00 0.00 2018-06-15 0 0 0
b) What position would be appropriate to reduce the beta of the portfolio to 0.3?
c) What might explain the negative cost-of-carry in case of OMX Helsinki 25 index?