Consider a forward contract on an underlying commodity, find the portfolio consisting of the underlying commodity and a bond (bond’s maturity coincides with forward’s maturity) that replicates the forward contract. 

(a) Show that the hedge ratio Δ is always equal to one. Give the financial argument to justify Δ = 1. 

(b) Let B(t,T) denote the time-t price of the unit-par zero-coupon bond maturing at time T and let S denote the price of the commodity at time t. Show that the forward price F(S,τ) is given by

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- F(S, t) = S/B(t, T), t = T − t.