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What is the hedge ratio

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Reference no: EM133126988

You have a well-diversified portfolio currently worth £100,000. The FTSE 100 index is currently priced at 6500. Your portfolio has a 25% higher uncertainty against the FTSE 100 index futures and has a 0.7 correlation with the FTSE 100 index futures. The FTSE 100 index futures prices is 6600 and the contract has a multiplier of £50.

(i) What is the hedge ratio?

(ii) Explain how you would hedge this portfolio, if you wish to be fully hedged.

Reference no: EM133126988

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