Question: Based on the minimum variance hedge ratio approach, what is the optimal number of futures contracts to deploy, given the following information. The correlation coefficient

Based on the minimum variance hedge ratio approach, what is the optimal number of futures contracts to deploy, given the following information. The correlation coefficient between changes in the underlying instruments price and changes in the futures contract price is 0.75, the standard deviation of the changes in the underlying positions value is 80%, and the standard deviation of the changes in the futures contracts price is 20%. Group of answer choices.

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

Question 3 1 pts Based on the minimum variance hedge ratio approach, what is the optimal number of futures contracts to deploy. given the following information. The correlation coefficient between...

Based on the minimum variance hedge ratio approach, what is the optimal number of futures contracts to deploy, given the following information. The correlation coefficient between changes in the...

Please anwer the question as detaied as possible QUESTION 1 1.1 On July 1, an investor holds 50,000 shares of a certain stock. The market price is S30 per share. The investor is interested in hedging...

A banks assets and liabilities both have a duration of 5 years. Is the bank hedged against interest rate movements? Explain carefully any limitations of the hedging scheme it has chosen. 2. Explain...

Based on the price sensitivity hedge ratio approach, what is the optimal number of futures contracts to deploy, give the following information. The yield beta is 0.65, the present value of a basis...

Based on the minimum variance hedge ratio approach what is the hedging effectiveness, given the following information. The correlation coefficient between changes in the underlying instruments price...

Based on the minimum variance hedge ratio approach what is the hedging effectiveness, given the following information. The correlation coefficient between changes in the underlying asset price and...

Use information from slides 11-3, 11-4, 11-5, 11-6, 11-7, & 11-8 to fill out the chart Relationship between portfolio Values, profit and rate of return - Fundamental approach Beginning Ending Profit...

13. A national chain of hotels utilizes a centralized authority structure. What is the most likely reason why top management favors centralized authority? a. They want to maintain a uniform image and...

An elderly woman promised that upon her death, $2000 per year was to be paid from her estate to John, for past his services that included living in her house for 6 years without paying for his room,...

Mr. Annis bought a rare guitar for $12,000 that will gain 5% value each year. After having the guitar for eight years, Mr. Annis wants to sell the guitar for $20,000. Is Mr. Annis asking too much or...

Write a recursive implementation of Euclids algorithm for finding the greatest common divisor (GCD) of two integers. Descriptions of this algorithm are available in algebra books and on the Web....

The first step in creating the pro forma income statement is to: Select one: a.create a sales forecast. maybe b.determine a reasonable salary and return on investment in the company. c.find published...

=+How well do these criteria correspond to the needs and expectations of business?

=+4. What is the purpose of a sandbox on a wiki? [LO-3]

=+sensitive data files or webmasters forget to protect confidential webpages from search engine indexes. If you conducted an online search that turned