Consider the following prices of the stock and the futures at the end of the one month.
month spot prices futures prices
1 12.000 15.000
2 12.029 15.021
3 12.049 15.056
4 12.005 15.010
5 12.013 15.011
6 12.039 15.055
7 12.020 15.026
8 12.010 15.000
9 12.003 14.971
10 12.046 15.019
11 12.057 15.013
12 12.021 14.977
13 12.003 14.966
14 12.012 14.985
15 11.980 14.958
16 12.003 14.987
Compute the optimal number of futures contracts that is needed for the best hedge, considering that you are long on the spot market and you wish to sell your stock in 1 month.
What can you say about the hedge effectiveness?
Describe how you obtained the hedge ratio. Who is your independent variable?