N
Nimisha
Member
Hi
In the ques a liab of a fund that promises to pay a return equal to the increase in capital value of an equity index over a 5 yr period subject to a min of 0 needs to be hedged.
The answer states that one of the options is a portfolio of equities that tracks the index/forward contract and an OTC put option based on the index value.
Pls explain how this combination (equities+OTC put)can hedge the liability.I am a bit confused in this.
In the ques a liab of a fund that promises to pay a return equal to the increase in capital value of an equity index over a 5 yr period subject to a min of 0 needs to be hedged.
The answer states that one of the options is a portfolio of equities that tracks the index/forward contract and an OTC put option based on the index value.
Pls explain how this combination (equities+OTC put)can hedge the liability.I am a bit confused in this.