Question: (b) Using a mean-variance framework, compute the optimal hedge ratio of a producer using oil futures contracts if in the oil market, the expected spot

(b) Using a mean-variance framework, compute the optimal hedge ratio of a producer using oil futures contracts if in the oil market, the expected spot price is $10, the current futures price is $10, the standard deviation of the futures price is 10, the covariance of the spot and futures price is 20. Epf = 100 (where p and f are the spot and futures prices respectively) and the level of risk aversion has a value of 0.1. [5 marks]

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