14. (Opposite hedge variance) Assume that cash flow is given by y=S, W + (Fr - Fo)h Let avar (Sr), var(Fr), and as cov(St. Fr). =

(a) In an equal and opposite hedge, I is taken to be an opposite equivalent dollar value of the hedging instrument Therefore h -W, where k is the price ratio between the asset and the hedging instrument. Express the standard deviation of y with the equal and opposite hedge in the form (That is, find B.) y = Was x B

(b) Apply this to Example 10.12 and compare with the minimum-variance hedge