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Generous Dynamics maintains an inventory of 4000 ounces of gold. The company is interested in protecting the inventory against daily price changes. The correlation of
Generous Dynamics maintains an inventory of 4000 ounces of gold. The company is interested in protecting the inventory against daily price changes. The correlation of the daily change in the spot and futures price is 0.4, the standard deviation of the daily spot price change is 26 percent, and the standard deviation of the daily change in the futures price is 14 percent. The futures contract size is 1000 ounces. How many contracts should GD buy or sell to hedge its inventory? how do I know is sell or buy?
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