1 THE TOTAL VALUE OF THE PORTFOLIO IS ¥55.0 BILLION AND THE...
Section 4.1
The total value of the portfolio is ¥55.0 billion and the 60% target allocation to equity
would be ¥33.0 billion, but the current allocation is ¥27.5 or ¥5.5 billion less. In order to
correct this discrepancy, the equivalent of ¥5.5 billion in bonds with a duration of 4.75
must be sold using bond futures (converted to synthetic cash) and then converted to
equity exposure with a 1.15 beta using stock futures. The number of equity futures
contracts to be bought is;
where β
T
is the target beta (1.15), β
S
is the beta of the synthetic cash position (0), β
f
is
the beta of the futures contract (1.05), S is the value of the stock being created from the
synthetic cash position (¥5.5 billion), and f
S