Hi - I have a small brain teaser for all of you
Long in X different UK stocks, all on the FTSE 100 but you don't know which they are, and you don't know the weightings except that they are all together worth 100 mm.
Short 100 mm FTSE100 futures (perfect ftse's).
The tracking error of the PF is 1%
If you "net out" your position, what's the maximum range the overall net is? That is, if fx the 100mm FTSE futures implies that you are short 10mm british petrol, what's the largest/smallest amount you possibly are long british petrol in the pf, in order to keep the tracking error on 1%?
Long in X different UK stocks, all on the FTSE 100 but you don't know which they are, and you don't know the weightings except that they are all together worth 100 mm.
Short 100 mm FTSE100 futures (perfect ftse's).
The tracking error of the PF is 1%
If you "net out" your position, what's the maximum range the overall net is? That is, if fx the 100mm FTSE futures implies that you are short 10mm british petrol, what's the largest/smallest amount you possibly are long british petrol in the pf, in order to keep the tracking error on 1%?
