Question regarding hedge ratio


Suppose that the standard deviation of monthly changes in the price of commodity A is $2. The standard deviation of montly changes in a futures price for a contract on commodity B (which is similar to commodity A) is $3, The correlation between futures price and the commodity price is 0.9. What hedge ratio should be uses when hedging a one month exposure to the price of commodity A?

Solution Preview :

Prepared by a verified Expert
Finance Basics: Question regarding hedge ratio
Reference No:- TGS0552677

Now Priced at $20 (50% Discount)

Recommended (95%)

Rated (4.7/5)