Question
You are a manager looking to hedge a commodity over a 30 day time horizon. In particular you are concerned that prices may rise and
You are a manager looking to hedge a commodity over a 30 day time horizon. In particular you are concerned that prices may rise and you need to purchase in the future. Below is historical data on your spot price and on the futures price
Day | Spot | Futures |
0 | 80 | 81 |
1 | 79.63 | 80.87 |
2 | 77.88 | 79.09 |
3 | 76.4 | 77.72 |
4 | 75.56 | 77.07 |
5 | 77.28 | 78.84 |
6 | 77.59 | 79.31 |
7 | 78.14 | 80.07 |
8 | 77.04 | 79.21 |
9 | 76.85 | 79.2 |
10 | 77.03 | 79.63 |
Compute the minimum variance hedge ratio. Make sure you write down any formula that you use so that I can check your computations. Make sure to indicate whether the managers should go long or short the futures contracts.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-text-image.webp)
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Step: 3
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started