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How much is optimal hedge ratio

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Reference no: EM132918831

The formula of optimal hedge ratio isH* = ρ × σp/h
σ

You want to hedge your rice crop of 8,000 bushels in September by corn futures. Each corn futures contract is on 4000 bushels of corn.

Problem a. How much is your optimal hedge ratio? (Facts: Standard deviation of corn futures price is $0.0397. Standard deviation of rice price is $0.0293. The correlation between the two is 0.871. )

Problem b. How many contracts do you need?

Reference no: EM132918831

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