18. (A general farm problemo) Suppose that, as in the corn farm example, the farm has random production and the final spot price is governed by the same demand function. However, the crop of the farm is not perfectly correlated to total demand, but cp and o are known The current futures price is also equal to the expected final spot price Show that the minimum-variance hedging position is -3 70CD + = 100,000 100 Check the solution for the special cases

(a) D 100C and

(b) acp = 0 [Hint Use Exercise 17]