What is the optimal number of contracts to buy or sell

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Reference no: EM131835232

JetBlue will purchase 5,500,000 gallons of jet fuel in 3 month and wants to hedge with heating oil futures. Heating oil futures contracts are for 42,000 gallons. From historical data σHO = 0.0423, σJF = 0.0383, and ρ = 0.929. Spot price on jet fuel = $1.99 and F0 on heating oil = $2.09.

a. Using futures contract what is the optimal number of contracts to buy or sell?

b. Using forwards contracts what is the optimal number of contracts to buy or sell?

Reference no: EM131835232

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