support@edupristine.com1800 200 5835Request a Call
Call Me

FRM-1 Study Notes

Optimal number of contracts

  • The optimal number of contracts (N*) to hedge a portfolio consisting of NA number of units and where Qf is the total number of futures being used for hedging
  • In the case of a stock index the similar logic follows. If P is the value of the portfolio of stocks held by an investor and A is the current value of the stocks lying under one futures contract then the optimal hedge ratio, N*, should be equal to P / A
  • In practical cases investors don’t typically have portfolios that trace the index. Hence the concept of β comes into play. Beta (β) is a measure of a stock's volatility in relation to the market. Then 
  • In order to change the beta (β) of the portfolio to (β*), we need to long or short the (N*) number of contracts depending on the sign of (N*)


Global Association of Risk Professionals, Inc. (GARP®) does not endorse, promote, review or warrant the accuracy of the products or services offered by EduPristine for FRM® related information, nor does it endorse any pass rates claimed by the provider. Further, GARP® is not responsible for any fees or costs paid by the user to EduPristine nor is GARP® responsible for any fees or costs of any person or entity providing any services to EduPristine Study Program. FRM®, GARP® and Global Association of Risk Professionals®, are trademarks owned by the Global Association of Risk Professionals, Inc

CFA Institute does not endorse, promote, or warrant the accuracy or quality of the products or services offered by EduPristine. CFA Institute, CFA®, Claritas® and Chartered Financial Analyst® are trademarks owned by CFA Institute.

Utmost care has been taken to ensure that there is no copyright violation or infringement in any of our content. Still, in case you feel that there is any copyright violation of any kind please send a mail to and we will rectify it.

Popular Blogs: Whatsapp Revenue Model | CFA vs CPA | CMA vs CPA | ACCA vs CPA | CFA vs FRM

DM_marketing.php Post ID = 66372