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An airline company expects to purchase 2 million gallons of jet fuel in 1 month and decides to use heating oil futures for hedging. Based

An airline company expects to purchase 2 million gallons of jet fuel in 1 month and decides to use heating oil futures for hedging. Based on monthly return data from the past 10 successive months, the company calculates the following standard deviations and correlations:

  1. Standard Deviation of the spot price of jet fuel: S = 0.03
  2. Standard Deviation of the heating oil futures contract price: F= 0.05
  3. Correlation between the spot price of jet fuel and the heating oil futures price: 1 = 0.7
  4. Correlation between the spot price of jet fuel and the spot price of heating: 2 = 0.6

Each heating oil contract traded by the CME Group is on 42,000 gallons of heating oil.

What should be the hedge ratio (h*) for this hedge? Round your calculation to the nearest two decimal places, i.e., 0.01.

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