Business, 07.05.2020 07:06 Madsissabell
Suppose that the standard deviation of monthly changes in the price of commodity A is $2. The standard deviation of monthly changes in a futures price for a contract on commodity B (which is similar to commodity A) is $3. The correlation between the futures price and the commodity price is 0.9.
1. What hedge ratio should be used when hedging a one month exposure to the price of commodity A?
a. 1.22
b. 0.60
c. 0.93
d. 0.65
Answers: 3
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