2. Suppose that the type of silver that needs to be used by the firm above...
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2. Suppose that the type of silver that needs to be used by the firm above is not the same as the type of silver underlying the contracts it will use: the variance of investment-grade silver futures price changes is 2.25 times higher than that of industrial-grade silver spot price changes. The correlation between the futures and spot price changes is estimated as 0.8. Determine the optimal cross hedging strategy in this scenario. 2. Suppose that the type of silver that needs to be used by the firm above is not the same as the type of silver underlying the contracts it will use: the variance of investment-grade silver futures price changes is 2.25 times higher than that of industrial-grade silver spot price changes. The correlation between the futures and spot price changes is estimated as 0.8. Determine the optimal cross hedging strategy in this scenario.
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In this scenario we need to adjust our crosshedging strategy to account for the difference in the variance of investmentgrade silver futures price cha... View the full answer
Related Book For
Business Analytics Data Analysis and Decision Making
ISBN: 978-1305947542
6th edition
Authors: S. Christian Albright, Wayne L. Winston
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