Can anyone help me with this?
In curriculum volumn 4, page 228. it says:
A common and straight forward derivatives-based semiactive equity strategy is to equitize a cash portfolio and then attempt to add value by altering the duration of the underlying cash.
Question: what is the underlying cash. how this strategy can alter the duration of underlying cash? and how the strategy can equitize a cash portfolion? what is mechanism here?
Thank you so much in advance!
What reading is this?
equitizing cash = convert cash on hand to equity.
do that by using the cash to invest in a “long futures position”.
you still have the cash - you have invested in futures => thus get the stock index exposure.
long stock = long futures + long risk free bond.
the long risk free bond is the cash you have on hand.
now since this is a futures contract - you still have not spent the cash (except for margin requirements) and can now use strategies to change the duration of the cash based on expectations.
Thank CPK123,
But I just wonder: where you get the equation:
long stock = long futures + long risk free bond.
" now since this is a futures contract - you still have not spent the cash (except for margin requirements) and can now use strategies tochange the duration of the cash based on expectations." I don’t understand this. Could you help me?
If you want $100 of stock exposure you could buy $100 of stocks, OR buy $100 of futures. the futures don’t cost you anything upfront. therefore you still have $100 of cash to earn interest payments on. (this is the bit that’s like owning a risk free bond).
Thanks Kiakaha alot!
when you do the Forwards and Futures derivatives chapter - what I have written above is part of the text.