Suppose you are concerned about your firm’s jet fuel exposure. Further, your analysis suggests the best futures contract to hedge jet fuel is unleaded gasoline. The fuel volatility (standard deviation of changes in' your firm’s entire jet fuel exposure) is $17,347,281, and the unleaded gasoline futures contract volatility (standard deviation of price changes in one unleaded gasoline futures contract) is $14,490. Suppose the correlation coefficient between fuel volatility and unleaded gasoline futures contract volatility is 0.71. Calculate the minimum variance hedge ratio. Defend whether this’ is a perfect hedge.

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