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!