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Your company deals with Allyom and wants to hedge its risk using future contracts. However, Futures are not available in Allyom. Closely correlated commodity is
Your company deals with Allyom and wants to hedge its risk using future contracts. However, Futures are not available in Allyom. Closely correlated commodity is Gold in which future contracts are available. You are provided with the following data. Calculate the Optimal Hedge Ratio and Total Number of Gold Future Contracts that your company should buy to hedge their position. | ||
Total Units of Allyom | 65,000 | |
Gold Future Contract Size | 2,000 | |
Day | Allyom Spot | Gold Future |
0 | 1,200 | 1,220 |
1 | 1,207 | 1,230 |
2 | 1,225 | 1,245 |
3 | 1,235 | 1,254 |
4 | 1,254 | 1,260 |
5 | 1,240 | 1,254 |
6 | 1,265 | 1,270 |
7 | 1,220 | 1,245 |
8 | 1,225 | 1,250 |
9 | 1,251 | 1,263 |
10 | 1,235 | 1,254 |
11 | 1,215 | 1,210 |
12 | 1,220 | 1,240 |
13 | 1,210 | 1,230 |
14 | 1,185 | 1,195 |
15 | 1,194 | 1,209 |
Hedge Ratio | Answer | |
Total Gold Contracts Purchased | Answer |
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