hedging, Risk Management

Assignment Help:
Suppose a farmer is expecting that her crop of grapefruit will be ready for

harvest and sale as 150,000 pounds of grapefruit juice in 3
months time. She would like to use futures to hedge her risk but unfortunately there

are no futures contracts on grapefruit juice. Instead she will use orange juice futures.

Suppose each orange juice futures contract is for 15,000
pounds of orange juice and the current futures price is F0=118.65 cents-per-pound.

The volatility, i.e. the standard deviation, of the prices of

orange juice and grape fruit juice is 20% and 25%, respectively,

and the correlation coefficient is 0.7. What is the approximate number

of contracts she should purchase to minimize the variance of her payoff?

Please submit your answer rounded to the nearest integer. So for example, if your calculations result in 10.78 contracts you should submit an answer of 11.

Related Discussions:- hedging

Synergy, Synergy This is the concept in which two or more various busin...

Synergy This is the concept in which two or more various businesses, activities, or procedure will. When it working together they create an overall value greater than that of t

Explain effective incident management system, Question 1: (a) Explain w...

Question 1: (a) Explain what is meant by the term „incident handling? in the context of information security. (b) Describe the main features of an effective incident manag

Risks covered under the policy., An insurance company is investigating offe...

An insurance company is investigating offering kidnap and ransom insurance. Policies are to be sold to multinational companies to provide cover for certain named employees who are

Historical simulation approach, How can I calculate 10-day 99% VaR for port...

How can I calculate 10-day 99% VaR for portfolio comprising two banks by using the Historical Simulation Approach ?

Stock exchange, what are the listing procedures for a company in internatio...

what are the listing procedures for a company in international stock exchange

Determine the current market risk premium, Case: You are a partner in a...

Case: You are a partner in a first time PE fund. Against all chances, you have been able to raise $300M from investors. The business plan based on which you got the funds from

Data security, Data Security: An important issue for all organisations ...

Data Security: An important issue for all organisations is the security of data. Just as documentation require physical security in the face of risk of theft / fire etc, electr

Bankruptcy of lehman brothers, In its early stages, the financial crisis ma...

In its early stages, the financial crisis manifested itself as an acute liquidity shortage among financial intermediaries. In this phase, concerns over the solvency of the sophisti

What are the main causes of risks in a project, Quesiton: (a) Describe ...

Quesiton: (a) Describe why people management is important for the success of a project (b) Show which people and groups of people are important for the success of a project

Futures Contracts, An Australian company purchases wheat on a regular basis...

An Australian company purchases wheat on a regular basis and is concerned about rising grain prices. It is now June and the company is in the process of planning their October whea

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd