Synthetic cash vs. zero target beta? equity, target, between, different, difference

LPoulin133

I know there are 2 different formula but I can't see the difference between them. Both strategies are to eliminate your equity positions. When do you use which formula? Thanks very very much!

Darien

I may be way off...

I think - if you are investing in an equity futures with same beta as your existing equity portfolio - then synthetic cash formula (without the beta, use rf).

if in a different equity futures -> then use beta, no rf.

CP

liangfeng

To change beta to zero means to remove systematic risk. But that does not remove all risk because there could still be other non-systematic risk behind. So use the formula without the risk free rate.

To make a position to become a synthetic cash means to convert the portfolio to risk free (ie. eliminate ALL risks). Use the risk free rate formula.

freakingout Wrote:
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> I know there are 2 different formula but I can't
> see the difference between them. Both strategies
> are to eliminate your equity positions. When do
> you use which formula? Thanks very very much!