Question 27 Jumbo Airline, a hypothetical company, will purchase 2.5 million gallons of jet fuel in one month and hedges using heating oil futures. Suppose that size of one heating oil futures is unknown. From historical data sigma subscript F=0.0325, sigma subscript s= 0.0295, and rho= 0.908. In addition, the spot price is 1.95 and the futures price is 1.98 (both dollars per gallon). What will be the size of heating oil futures if 4.51 heating oil futures are required for optimal hedge?

Question 27 Jumbo Airline, a hypothetical company, will purchase 2.5 million gallons of jet fuel in one month and hedges using heating oil futures. Suppose that size of one heating oil futures is unknown. From historical data sigma subscript F=0.0325, sigma subscript s= 0.0295, and rho= 0.908. In addition, the spot price is 1.95 and the futures price is 1.98 (both dollars per gallon). What will be the size of heating oil futures if 4.51 heating oil futures are required for optimal hedge?

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter11: Managing Transaction Exposure

Section: Chapter Questions

Problem 35QA

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