You are planning to make a hedging. The standard deviation of semiannual changes in a futures price on the gold is $0.96. The standard deviation of semiannual changes of the gold price is $0.87 and the coefficient of correlation between the two changes is 0.9. What is the optimal hedge ratio for a 6-month contract?
You are planning to make a hedging. The standard deviation of semiannual changes in a futures price on the gold is $0.96. The standard deviation of semiannual changes of the gold price is $0.87 and the coefficient of correlation between the two changes is 0.9. What is the optimal hedge ratio for a 6-month contract?
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
Problem 1PS
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You are planning to make a hedging. The standard deviation of semiannual changes in a futures price on the gold is $0.96. The standard deviation of semiannual changes of the gold price is $0.87 and the coefficient of correlation between the two changes is 0.9. What is the optimal hedge ratio for a 6-month contract?
Choose correct answer:
a. The optimal hedge ratio is 0.8352
b. The optimal hedge ratio is 0.1
c. The optimal hedge ratio is 0.9931
d. The optimal hedge ratio is 0.8156
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