Business, 22.12.2020 21:00 angie0000

Pear, Inc. is a manufacturer that is heavily dependent on plastic parts shipped from Malaysia. Pear wants to hedge its exposure to plastic price shocks over the next 5 months. Futures contracts, however, are not readily available for plastic. After some research, Pear identifies futures contracts on other commodities whose prices are closely correlated to plastic prices. Futures on Commodity A have a correlation of 0.90 with the price of plastic, and futures on Commodity B have a correlation of 0.80. The price of plastic Futures on both Commodity A and Commodity B are available with 6-month and 9-month expiration. Ignoring liquidity considerations, which contract would be the best to minimize basis risk

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Pear, Inc. is a manufacturer that is heavily dependent on plastic parts shipped from Malaysia. Pear...

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