Compute the optimal hedge ratio for jewelry co

Reference no: EM131457994

Question: Suppose that Jewelry Company is planning to sell twenty thousand ounces of platinum at some future date. The standard deviation of changes in the futures price per ounce sd_s is 12.86, that for changes in the spot price per ounce sd_f is 14.38, and the correlation coefficient between the spot and futures price changes COTT_s,f is 0.80.

a. Compute the optimal hedge ratio for Jewelry Co.

b. How many contracts do they need to hedge their position? (The contract size is fifty ounces.)

c. Will this be a buying or a selling hedge?

Reference no: EM131457994

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