Question

According to the CME Group, the market price of the E-mini futures is $2,939.25. Each futures contract delivers 50 times the index. A long-only equity portfolio with market value of USD $10,000,000 has a beta of 1.5. The portfolio manager is planning to increase market exposure such that the portfolio beta becomes 2. How many futures contracts should the manager long/short

Answer 1

E-Mini futures = $2,939.25

Contract Size = 50

Portfolio Value = $10,000,000, Beta 1.5

Target Beta 2, Planning to increase the exposure

Calculation of Number of contracts needed = [Portfolio Size x (Target Beta - Actual beta)] / Contracts Size x Future Price

= (10,000,000 x (2 - 1.5) ] / 50 x 2939.25

= (10,000,000 x 0.5) / 146962.5

= 5,000,000 / 146962.5

= 34.02228459641065

= 34

So, you need to go Long 34 contracts to Increase the exposure.