Q-153.2. Using the same assumptions (i.e., spot price change volatility = 20%, futures price change volatility = 32%, correlation = 0.8), what is the minimum variance hedge ratio? | Financial Risk Manager Part 1 Quiz - LeetQuiz
Financial Risk Manager Part 1
Explanation:
The minimum variance hedge ratio is
h∗=ρσFσS
Substituting the values:
h∗=0.80×0.320.20=0.80×0.625=0.50
So the minimum variance hedge ratio is 0.50.
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Q-153.2. Using the same assumptions (i.e., spot price change volatility = 20%, futures price change volatility = 32%, correlation = 0.8), what is the minimum variance hedge ratio?
