Explanation:
HR = Beta₆,F = Covₛ,ᶠ / σ_F² = 0.05 / 0.2² = 1.25
(Book 3, Module 34.1, LO 34.d)
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Question 56
A hedger calculates the covariance between the spot and the futures prices to be 0.05, the spot standard deviation to be 0.3, and the futures standard deviation to be 0.2. Which of the following amounts is closest to the optimal hedge ratio for this position?
A
0.556.
B
0.800.
C
0.833.
D
1.250.
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