Standard deviation of change in spot and future prices

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Reference no: EM131817205

General Mills will buy 4 million bushels of oats in two months. Kellogg finds that the ratio of the standard deviation of change in spot and future prices over a two-month period for oats is 0.81 and the correlation between the two-month change in price of oats and the two-month change in its future price is 0.75. Find the optimal hedge ratio for General Mills. Would General Mills Buy or Sell contracts and how many contracts do they need to hedge if the size of each oats contract is 5,000 bushels?

Reference no: EM131817205

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