where Ps(t)f (t,T) is the correlation coefficient between the spot and futures prices, and s(t), f(t,r) are the standard deviations. The variance is a quadratic function in N and has a minimum at N = Ps(t)f(t,T) which is the optimal hedge ratio. Js(t) Of(t,T) Exercise 6.9 Find the optimal hedge ratio if the interest rates are constant.