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An Airlines will buy 2 . 5 million gals of jet fuel in 3 months and has decided to hedge the price using futures contracts

An Airlines will buy 2.5 million gals of jet fuel in 3 months and has decided to hedge the price using futures contracts on heating oil. The current spot price and variance of jet fuel price changes is $2.64/gallon and 0.0008respectively while the current futures price and variance of heating oil fuel price changes is 1.88 and 0.0016 respectively. The corr. coeff. 0.83 and one heating oil futures contract has a contract size of 42000 gallons. What should the company do to hedge?

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