Fill the table using static hedging, estimate the hedge ratios once and apply them to each month for the hedging period. For dyanic hedging, estimate the hedge ratios using a moving estimation window (54).

Complete the Table below using this data in 8 significant figures

Estimation window : 54

Start Hedging : Jan 2006

End Hedging : Jan 2007

Currency 1 : Euros

Currency 2 : US Dollars

Currency Spot Prices

Date	Europe	United States
1/31/2006	1.388309	1.1433
2/28/2006	1.356721	1.13795
3/31/2006	1.411759	1.1666
4/28/2006	1.411494	1.12055
5/31/2006	1.414121	1.10095
6/30/2006	1.421986	1.1121
7/31/2006	1.442372	1.13025
8/31/2006	1.420535	1.10975
9/29/2006	1.413244	1.11565
10/31/2006	1.430085	1.12045
11/30/2006	1.513776	1.142
12/29/2006	1.534506	1.1637
1/31/2007	1.533864	1.1804

Currency Forward Prices:

Date	Europe	United States
1/31/2006	1.389552	1.142395
2/28/2006	1.358176	1.137115
3/31/2006	1.413104	1.165605
4/28/2006	1.413398	1.119625
5/31/2006	1.415797	1.100075
6/30/2006	1.423785	1.11103
7/31/2006	1.444172	1.129155
8/31/2006	1.421897	1.108765
9/29/2006	1.41446	1.114665
10/31/2006	1.43131	1.119475
11/30/2006	1.514612	1.140925
12/29/2006	1.535457	1.162635
1/31/2007	1.534647	1.179445

Table to be completed with a plotted graph explained by a two line caption:

= r,-im-h972 The data are in the files Currency Spot Prices and Currency Forward Prices. Without Portfolio Ef fects in the results table refers to individual hedge ratios estimated as with Portfolio Effects refers to hedge ratios estimated as VVs. For Static hedging, estimate the hedge ratios once and apply them to each month of your hedging period. For Dynamic hedging, estimate the hedge ratios using a moving estimation window as shown in the diagram but using the number of months as- signed to you in the parameter table. Replace realNumber in the file Results Table with your values where h and he are hedge ratios. The covariance matrix of returns, V, is 3 x 3 V where VT (C01/2) is the l x 2 vector of covariances between the returns on the spot portfo- lio and each forward contract, and Vgg is the 2 x 2 covariance matrix for the forward contracts. Francesca is one smart cookie. PAGE 3 OF 7 h = =V7V Dynamic Hedge Ratio Estimation Hedging Period 4 70 Estimation Window with at least eight significant digits. The unhedged results will be the same for both the Static and Dynamic approaches. Report population standard deviations. 2 59 60 Estimation Window 1 2 59 60 You know there has to be a graph as part of the assignment. Plot the unhedged return on your portfolio, the dynamically-hedged return without portfolio effects, and the dynamically- hedged return with portfolio effects, all in one graph. You'll want to frame this one. Don't forget a caption of no more than two sentences. Estimation Window and so on = r,-im-h972 The data are in the files Currency Spot Prices and Currency Forward Prices. Without Portfolio Ef fects in the results table refers to individual hedge ratios estimated as with Portfolio Effects refers to hedge ratios estimated as VVs. For Static hedging, estimate the hedge ratios once and apply them to each month of your hedging period. For Dynamic hedging, estimate the hedge ratios using a moving estimation window as shown in the diagram but using the number of months as- signed to you in the parameter table. Replace realNumber in the file Results Table with your values where h and he are hedge ratios. The covariance matrix of returns, V, is 3 x 3 V where VT (C01/2) is the l x 2 vector of covariances between the returns on the spot portfo- lio and each forward contract, and Vgg is the 2 x 2 covariance matrix for the forward contracts. Francesca is one smart cookie. PAGE 3 OF 7 h = =V7V Dynamic Hedge Ratio Estimation Hedging Period 4 70 Estimation Window with at least eight significant digits. The unhedged results will be the same for both the Static and Dynamic approaches. Report population standard deviations. 2 59 60 Estimation Window 1 2 59 60 You know there has to be a graph as part of the assignment. Plot the unhedged return on your portfolio, the dynamically-hedged return without portfolio effects, and the dynamically- hedged return with portfolio effects, all in one graph. You'll want to frame this one. Don't forget a caption of no more than two sentences. Estimation Window and so on