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British Airways would like to cross-hedge their jetfuel costs using oil futures. One oil futures contract delivers 1,000 barrels of oil and 1 barrel of
British Airways would like to cross-hedge their jetfuel costs using oil futures. One oil futures contract delivers 1,000 barrels of oil and 1 barrel of oil holds 42 gallons. Every day, Bristish Airways flights from Miami, FL to Athens, Greece. This flight requires 36,000 gallons of fuel (1 gallon of fuel per second!). The correlation between jet fuel and oil is 0.80. The standard deviation of jet fuel and oil prices is 0.30 and 0.40, respectively. How many oil futures contracts should British Airways purchase to offset their jet fuel costs?
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