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What optimal hedge ratio for a three-month contract is

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A mining firm expects to sell 5,500 ounces of palladium in three months time (December) and needs to hedge it. The closest contract is gold futures traded on the CME, with December expiry, where each contract is on 100 ounces of gold. The standard deviation of changes in palladium is 0.40. The standard deviation of changes in gold futures is 0.19, and the coefficient of correlation between the two changes is 0.65.

Problem 1: The optimal hedge ratio for a three-month contract is

Reference no: EM132631238

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