Question
Suppose Company C needs to purchase 100 barrels of gasoline 1 months from now to operate its fleet of trucks. The standard deviation of gasoline
Suppose Company C needs to purchase 100 barrels of gasoline 1 months from now to operate its fleet of trucks. The standard deviation of gasoline spot-price movements is 30%. Suppose there are no futures contracts available on gasoline, however futures on barrels of oil are available; the standard deviation of oil-futures price movements is 20% and the correlation between the oil and gasoline price movements is 80%. Assume for simplicity that gas and oil, spot and futures, are all currently trading at $50 per barrel and that one future represents one barrel. Calculate the optimal hedge ratio, using oil futures to hedge your gasoline position.
Type your answer in the space below, to the nearest two decimal places.
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