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LPoulin133

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tT
发表于 2011-7-11 19:40 | 只看该作者

Synthetic cash vs. zero target beta?

equity, target, between, different, difference
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!
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Darien

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2#
发表于 2011-7-11 19:40 | 只看该作者
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

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liangfeng

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3#
发表于 2011-7-11 19:40 | 只看该作者
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:
-------------------------------------------------------
> 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!

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