Synthetic Cash
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Synthetic
Cash
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To create synthetic cash, do the following:
# of futures contract = -
equity held * (1+rf)^T / contract price
-ve means shorting the contract
May 11th, 2009 in
CFA - LEVEL 3 Posted by Editor
Completely wrong appoach; Let’s start from the very beginning: you wish turn beta to zero. Classical formula works only and if: futures’ beta is equal to equity’s beta; Futures’ beta for the same stock is always less, present value factor is, as usually, 1/(1+r)*T
You can never create cash with futures different from stock… See curriculum…
Sample 2007, 2008 CFA exams’ answers to the issue are incorrect.