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What hedge ratio should be used

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Reference no: EM132861334

Question 1: Suppose that the standard deviation of monthly changes in the price of commodity A is 3. The standard deviation of monthly changes in a futures price for a contract on commodity B (which is similar to commodity A) is 2. The correlation between the futures price and the commodity price is 0.9. What hedge ratio should be used when hedging a one month exposure to the price of commodity A?

Group of answer choices

Option 1: 1.35

Option 2: 1.08

Option 3: 1.05

Option 4: 1.2

Reference no: EM132861334

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