Question
he standard deviation of monthly changes in the spot prices (in dollars per barrel) of crude oil is 0.078. The standard deviation of monthly changes
he standard deviation of monthly changes in the spot prices (in dollars per barrel) of crude oil is 0.078. The standard deviation of monthly changes in the futures prices of crude oil for the closest contract is 0.062. The correlation between the futures price changes and the spot price changes is 0.88. It is now May 10. A oil producer is committed to purchasing 80,000 barrels of crude oil on June 10. The producer wants to use the June crude oil futures contracts to hedge its risk. Each contract is for the delivery of 1,000 barrels of crude oil. What strategy should the oil producer follow? How many June crude oil futures contracts should the oil producer sell or buy now?
Please give me the process, thank you!
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