In your role as a senior portfolio manager at a multi-billion-dollar asset management firm, you are tasked with developing a risk management strategy to protect your firm's portfolio from potential downturns in the market. The fixed income portion of the portfolio has been relatively stable, but the equity segment is heavily weighted toward high-growth technology stocks, which have recently shown increased volatility. Additionally, the firm’s clients are increasingly concerned about the implications of rising interest rates on their investments.
You are considering using derivatives as part of the risk management strategy. Specifically, you must evaluate the potential use of options and futures contracts to hedge against equity market declines and interest rate fluctuations.
Discuss the advantages and disadvantages of using options and futures in this context. Additionally, provide a detailed analysis of how these derivatives can be structured to achieve effective risk management for your firm's portfolio. Include specific examples where applicable.