Question
An electric car manufacturer needs to buy 5,500 ounces of palladium in three months time (December) and needs to hedge it. The closest contract is
An electric car manufacturer needs to buy 5,500 ounces of palladium in three months time (December) and needs to hedge it. The closest contract is gold futures traded on the CME, withDecember expiry, where each contract is on 100 ounces of gold. The standard deviation of changes in palladium is 0.43. The standard deviation of changes in gold futures is 0.22, and the coefficient of correlation between the two changes is 0.58.
The optimal hedge ratio for a three-month contract isAnswer
. Give your answer correct tothreedecimal places.
The electric car manufacturer should take aAnswer
longshortposition onAnswer
contracts on gold futures on the CME forDecember delivery. Give your answer as awholenumber of contracts.
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