Assignment:
1. Question on Minimum Variance hedge
a.) Get data from https://www.eia.gov/petroleum/data.php, calculate the standard deviation and correlation of returns between the various energy futures commodities (all 5). Use the near-term futures only. (Help Note: Use the Data Analysis to calculate the correlation)
b.) Calculate the minimum variance hedge ratios using only spot crude oil prices, and hedged with the futures prices of heating oil and natural gas using 1 month, 2, month, and 3 month maturity contracts.
c.) Explain the implication of these numbers
2. Margin Calls
a.) Assuming you enter into 2 futures contract every 3 months beginning in January, April, July, and October, mark-to-market daily the position of holding three month futures contract, both the short and long position using the initial and maintenance margins from the CME and the prices from the 3 month crude oil futures. (use past 10 years of data)
b.) Highlight when you receive margin calls.
c.) Explain how using futures versus forwards would affect your PnL.