The formula for determining the number of stock index option contracts needed to hedge an equity portfolio is:
A) (Portfolio beta $\times$ portfolio value)/(Option vega $\times$ Option contract value)
B) (Portfolio beta $\times$ portfolio value)/(Option theta $\times$ Option contract value)
C) (Portfolio beta $\times$ portfolio value)/(Option delta $\times$ Option contract value)
D) (Portfolio standard deviation $\times$ portfolio value)/(Option Beta $\times$ Option contract value)
E) (Portfolio standard deviation $\times$ portfolio value)/(Option delta $\times$ Option contract value)

Question

Quizplus · Accepted Answer

The number of stock index option contracts needed to hedge an equity portfolio can be determined using the formula (Portfolio beta × portfolio value)/(Option delta × Option contract value). Option delta measures the sensitivity of an option's price to changes in the underlying asset's price, which makes it a suitable measure for determining how many option contracts are needed to hedge the equity portfolio.

The Formula for Determining the Number of Stock Index Option ×\times×

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