The correlation between changes in price of a spot asset and futures asset is 69%. The standard deviation of changes in spot prices is $2, and that of futures prices is

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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The correlation between changes
in price of a spot asset and futures
asset is 69%. The standard
deviation of changes in spot prices
is $2, and that of futures prices is
$3. What is the standard deviation
of a position that is optimally (i.e.,
minimum-variance) hedged by
using futures?
Select one:
O A. 2.10
O B. 1.41
C. 1.99
O D. 2.52
Transcribed Image Text:The correlation between changes in price of a spot asset and futures asset is 69%. The standard deviation of changes in spot prices is $2, and that of futures prices is $3. What is the standard deviation of a position that is optimally (i.e., minimum-variance) hedged by using futures? Select one: O A. 2.10 O B. 1.41 C. 1.99 O D. 2.52
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