Should the hedger take a long or short futures position

Assignment Help Financial Management

Reference no: EM131457024

A trader owns 55.000 units of a particular asset and decides to hedge the value of her position with futures contracts on another related asset. Each futures contract is on 5.000 units. The spot price of the asset that is owned is $28 and the standard deviation of the change in this price over the life of the hedge is estimated to be $0.43. The futures price of the related asset is $27 and the standard deviation of the change in this over the life of the hedge is $0.40. The coefficient of correlation between the spot price change and futures price change is 0.95.

What is the minimum variance hedge ratio?

Should the hedger take a long or short futures position?

What is the optimal number of futures contracts with no tailing of the hedge?

What is the optimal number of futures contracts with tailing of the hedge?

Reference no: EM131457024

Questions Cloud

What is the after-tax salvage value : If the lathe can be sold for $4,300 at the end of year 3, what is the after-tax salvage value?

What will be your balance when you go to retire in ten years : What will be your balance when you go to retire in 10 years.

Examine the unique nature of the third party payer system : This assignment will assess the competency 2. Examine the unique nature of the third party payer system. Directions: In a minimum of 2 full pages.

Explain the making a persuasive case for employment : Explain the Making a Persuasive Case for Employment. It should not contain any salutation, unlike a letter, as it will be an attachment.

Should the hedger take a long or short futures position : What is the minimum variance hedge ratio? What is the optimal number of futures contracts with tailing of the hedge?

What is the entrepreneurs educational background : The interview of the entrepreneur must be conducted in person, and cannot be done over the phone without first getting instructor permission.

Describe how medicare reimburses the major types of provider : In a 200 words, Describe how Medicare reimburses the major types of providers, and discuss the implications of these methods for an organization's resource.

Compute the flexible-budget variance : ACCT2121C-M INTRODUCTORY MANAGEMENT ACCOUNTING ASSIGNMENT. Compute the flexible-budget variance for the manufacturing vice president

Ahca that would lead to more uninsured people : What is it about the AHCA that would lead to more uninsured people?

User Account

All Pages