Based on the following spreadsheet:

Write down the formula for calculating hedge ratio according to the nave and optimal (econometric) methods. Calculate the nave hedge ratio (HRN) and econometric (optimal) hedge ratio (HR*) using the data in the spreadsheet (show your calculation both in the spread sheet and below).

A B D E F G H 1 Calculating Hedge Ratio from Cash and Futures Prices 2 3 ACP AFP ACP/AFP CP 61.40 64.17 64.99 63.49 60.32 59.03 58.05 FP 68.98 69.32 67.88 65.11 62.80 60.12 60.31 Basis -7.59 -5.15 -2.90 -1.63 -2.48 -1.09 -2.26 2.77 0.82 -1.50 -3.17 -1.29 -0.98 0.34 -1.44 -2.77 -2.31 -2.68 0.19 8.25 -0.57 0.54 1.37 0.48 -5.27 61.63 64.93 -0.56 0.80 4 March 5 April 6 May 7 June 8 July 9 Aug 10 Sep 11 12 Mean 13 Variance 14 Std. Dev. 15 Covariance 16 Corr. Coeff. 17 18 HE 19 HR (Nave) 20 HR (Regression) 21 7.08 5.23 4.28 2.07 2.66 15.58 3.95 7.47 0.83 -1.45 1.97 1.40 1.61 0.67 0.26 0.80 0.98 A B D E F G H 1 Calculating Hedge Ratio from Cash and Futures Prices 2 3 ACP AFP ACP/AFP CP 61.40 64.17 64.99 63.49 60.32 59.03 58.05 FP 68.98 69.32 67.88 65.11 62.80 60.12 60.31 Basis -7.59 -5.15 -2.90 -1.63 -2.48 -1.09 -2.26 2.77 0.82 -1.50 -3.17 -1.29 -0.98 0.34 -1.44 -2.77 -2.31 -2.68 0.19 8.25 -0.57 0.54 1.37 0.48 -5.27 61.63 64.93 -0.56 0.80 4 March 5 April 6 May 7 June 8 July 9 Aug 10 Sep 11 12 Mean 13 Variance 14 Std. Dev. 15 Covariance 16 Corr. Coeff. 17 18 HE 19 HR (Nave) 20 HR (Regression) 21 7.08 5.23 4.28 2.07 2.66 15.58 3.95 7.47 0.83 -1.45 1.97 1.40 1.61 0.67 0.26 0.80 0.98