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American Airlines (AA) expects to purchase 20 million gallons of jet fuel in 3 months and would like to hedge against price increases in the
American Airlines (AA) expects to purchase 20 million gallons of jet fuel in 3 months and would like to hedge against price increases in the future. Since this particular Jet fuel is not trading on the futures market, AA enters into crude oil futures contract traded by the CME Group where each futures contract consists of 1,000 barrels per contract. Please note that 1 crude oil barrel is equivalent to 42 gallons. Suppose that the standard deviation of monthly changes in jet fuel price is $0.18. The standard deviation of monthly changes in a crude oil futures price is $1.23. The correlation between crude oil futures price and jet fuel price is 0.98. What optimal number of crude oil futures
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