Find the hedging strategy with the minimal variance

Assignment Help Financial Management

Reference no: EM131340412

Suppose company A today enters a contract with company B for delivering 10,000 units of commodity c three months from today. Company A wants to hedge the risk of this position. Unfortunately, there is no futures market for commodity c. There is, however, a futures market for commodity d that includes a futures contract with maturity of three months. Suppose that it is found from historical data that the standard deviation of the commodity-c price is σc = 0.02, the standard deviation of the commodity-d three-month futures price is σd = 0.01, and the correlation between the two is 0.8. Find the hedging strategy with the minimal variance, and compute this minimal variance.

Reference no: EM131340412

Questions Cloud

Compare confucian role ethics and care ethics : Your term paper will be on a topic of your choosing, so long as it is comparative in nature and addresses at least one of the major traditions of Asian philosophy discussed in this class. It will be worth a maximum of twenty points (the same as on..

Strategies marketers use to develop brand loyalty : How would you describe Apple's (or United Way) brand strategy? Discuss other brand strategies marketers use to develop brand loyalty. Give a detailed description of what in involved with the strategy--what are the various components?

Determine the resistance value in each case : Three resistances were measured using a commercial Wheatstone Bridge, yielding the following results for the settings on the multiplying, dividing and variable arms. Determine the resistance value in each case.

Main section consisting of two or more paragraphs : Research and identify how three specific technologies (texting, mobile phones, voice mail, email, Twitter, etc.) can be used to provide customer service to customers. Provide detailed information on how each technology is used.

Find the hedging strategy with the minimal variance : Suppose company A today enters a contract with company B for delivering 10,000 units of commodity c three months from today. Company A wants to hedge the risk of this position. Unfortunately, there is no futures market for commodity c. Find the hedgi..

Determine the potential gradient between them : The flux density between two plates separated by a dielectric of relative permittivity 8 is 1.2 μC/m2. Determine the potential gradient between them.

Explain why you agree or disagree with results : Explain why you agree or disagree with your results. Develop strategies to advance your career using your strengths. How can you use goal-setting to increase motivation and improve job performance?

Explain basic earnings and diluted earnings per share : Explain basic earnings per share, diluted earnings per share, potential ordinary shares and limitation of EPS as a performance measure.

Relevance of economic concepts within the healthcare sector : Demonstrate an understanding of the relevance of economic concepts within the healthcare sector.

User Account

All Pages