Calculation of minimum variance hedge ratio

Assignment Help Finance Basics

Reference no: EM13827553

Problem:

The following table gives data on daily changes in the spot price and futures price for a certain commodity:

âˆ†S +5 +8 -2 +3 -5 +0 -2 +7 +3 +7

âˆ† F +2 +4 -1 +0 +1 -1 -7 +2 +5 +8

(a) Use the data to calculate a minimum variance hedge ratio for an investor who holds the commodity and plans to sell it soon. Ignore tailing adjustments to account for daily settlement.

(b) Evaluate how well a hedging strategy based on the minimum variance hedge ratio would have worked for each day of the 10-day period covered by the data, i.e. compute the value of your hedge for each of the ten days by adding losses/ gains from both the spot and futures positions.

(d) What is the daily standard deviation in your gain/ losses?

(e) What is the daily standard deviation without your hedge?

(f) What is the daily standard deviation if you use a (not optimal) hedge of 1 short position in the futures?

Summary of problem:

The question belongs to Finance and it discusses about calculation of minimum variance hedge ratio for 10 days by adding losses/gains from both spot and futures positions.

Total Word Limit: 109 Words

Reference no: EM13827553

Questions Cloud

Prepare a business report on apple iphone4 : Prepare a business report on Apple iPhone4

Evaluate the basis of project performance norms : Evaluate the executive sessions. Should they be held on the basis of project performance norms and the key project milestone dates and not per a fixed schedule? Why? Would this require changes in organizational culture? Explain.

Which economic systems did not exist prior to revolution : What does it mean for an action to be subjectively right - Which of the following was a hedonistic utilitarian that argued that we should consider intensity, duration, certainty, propinquity, and fecundity when performing an analysis?

Marketing research design with framework for study : Marketing Research Design with Framework for Study

Calculation of minimum variance hedge ratio : The following table gives data on daily changes in the spot price and futures price for a certain commodity:

Write an essay with three sociological concepts : The problem belongs to Sociology and it is explain about writing an essay with three sociological concepts and how they are connected.

Discuss the specific controls and environmental factors : Conduct research online to determine the challenges and issues that are related to information technology (IT) management. Discuss the specific controls, environmental factors, competitive factors, and people and organizational factors that are chall..

Critique the fruits and veggies go digital : Can someone summarize and "critique the Fruits and veggies go digital" article one page each add references to the summary?

Unit is about motivating and leading : This unit is about motivating and leading, but there are dramatic differences and conflicts in how to motivate in different countries. How can a manager motivate people using the needs hierarchy in the international context? What are the conflicting ..

User Account

All Pages