Question
Suppose that the standard deviation of monthly changes in the price of Sugar #11 commodity is $2. The standard deviation of monthly changes in a
Suppose that the standard deviation of monthly changes in the price of Sugar #11 commodity is $2. The standard deviation of monthly changes in a futures price for a contract on Sugar #16 commodity is $3. The correlation between the futures price and the commodity price is 0.9.(Show Work)
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| Standard Deviation of Monthly Changes | Correlation Between Futures Price and Commodity Price |
| Sugar #11 Commodity | $2 | 0.90 |
| Sugar #16 Commodity | $3 | 0.90 |
What hedge ratio should be used when hedging a one-month exposure to the price of Sugar #11?
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Financial Management Theory And Practice
Authors: Prasanna Chandra
11th Edition
9355322208, 978-9355322203
