Assume JetBlue wants to hedge away the risk jet fuel prices will rise, but cannot locate a derivative contract where the underlying asset is jet fuel. You can, however, locate contracts on WTI, Brent, and heating oil. This means the company will have to cross hedge. Use the information below for problem 4.

4. Assume JetBlue hedges 60M bbl. of jet fuel. Using the 1990-2011 data, pick the best futures contact (WTI vs. Brent. vs. Heating oil) to hedge with, assuming only WTI and Brent futures are liquid enough. Using your lecture notes, the number of contracts required is closest to (2 points):

A. 1143

B. 1286

C. 1400

D. 1500

E. 1571

WTI Brent Heating Oil CORREL (1990-2011) Beta (1990-2011) 0.90 1.10 0.80 0.95 0.98 1.05 WTI Brent Heating Oil CORREL (2007-2011) Beta (2007-2011) 0.85 0.80 0.80 0.95 1.10 1.05