GMS Hedging Simulation

1 / 1

# GMS Hedging Simulation - PowerPoint PPT Presentation

GMS Hedging Simulation. Joe Braveheart and Kate Torelli, security analysts for Lion-Fund, have both identified a gold mining stock (ticker symbol GMS) as a particularly attractive, albeit risky, investment. Currently GMS stock sells for \$100

I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.

## PowerPoint Slideshow about 'GMS Hedging Simulation' - truman

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.

- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
GMS Hedging Simulation
• Joe Braveheart and Kate Torelli, security analysts for Lion-Fund, have both identified a gold mining stock (ticker symbol GMS) as a particularly attractive, albeit risky, investment. Currently GMS stock sells for \$100
• Joe Braveheart would like to invest in GMS Stock alone.
• Kate Torelli is considering using put options to hedge against downside risk. She called an options trader at a large investment bank for quotes. The prices for three (European-style) put options are

Put Option A Put Option B Put Option C

Strike Price \$95 \$100 \$105

Option Price \$2.20 \$6.40 \$12.50

• Kate consider a portfolio with the following weights:

88% GMS, 2% Option A, 1% Option B, 9% Option C

• Based on the analysis of historical returns, Joe and Kate assume that GMS Stock return is normally distributed, with mean 2% and standard deviation 18.33%.
• Evaluate Joe and Kate’s portfolios.