Question
Calculate the number of futures contracts and the needed position to hedge a one-year in the future purchase of gasoline. The needed gasoline will
Calculate the number of futures contracts and the needed position to hedge a one-year in the future purchase of gasoline. The needed gasoline will be five million gallons and the current price is $5 per gallon. The one-year heating oil futures contract is for 42,000 gallons and has a delivery price of $4.9 per gallon. The coefficient of correlation between gasoline and heating oil is 0.95. The standard deviations for gasoline and heating oil have been 10% and 8% respectively.
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