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An airline co. will buy 1 million gals of jet fuel in 3 months and wants to hedge the price using futures contracts on heating
An airline co. will buy 1 million gals of jet fuel in 3 months and wants to hedge the price using futures contracts on heating oil. The current spot price and variance of jet fuel price changes is 2.72/gallon and 0.0008 respectively while the current futures price and variance of heating oil fuel price changes is 1.78 and 0.0016 respectively. The corr. coeff. is 0.80 and one heating oil futures contract has a contract size of 42,000 gallons. What should the company do to hedge?
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