Answered step by step
Verified Expert Solution
Question
1 Approved Answer
You are trying to hedge an inventory of grain with a futures contract on wheat. The historical standard deviation on monthly returns on your inventory
You are trying to hedge an inventory of grain with a futures contract on wheat. The historical standard deviation on monthly returns on your inventory is 20 and the standard deviation of monthly returns on the futures contracts is 14. The correlation between the two return series is 0.9. What is the optimal hedge ratio?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started