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daily spot prices for WTI Crude Oil (WTI) and Brent Crude Oil (BRENT), as well as daily prices for near-month WTI Crude Oil futures contract (CL).1 Assume that the risk-free rate for of year 2021 has been exactly zero.

On 1 July 2021, a Texas oil company, ExxonMobil, decides to hedge 1 million barrels of WTI Crude Oil. On the same day, a British oil producer, BP, decides to hedge 1.5 million barrels of BRENT Crude Oil. Both companies will use WTI Crude Oil futures to hedge between July 1 and December 31, 2021. 3. What would the standard deviations of the two companies' spot oil positions (July 1-December 31, 2021) be if they do not hedge? 4. What hedge ratios should ExxonMobil and BP use, respectively? Keep in mind that they can only use information available on 1 July 2021. 5. What positions should ExxonMobil and BP take in futures contracts? Note that TWI Crude Oil futures contract size is 1,000 barrels. 6. Calculate daily returns of optimally hedged portfolios for ExxonMobil and BP from July until December of 2021, i.e. after he puts his hedge in place. What are the standard deviations of the two companies' hedged returns? (Use the following approach to calculate hedge portfolio returns: Rett,hedge = Rett,Spot + h Rett,Future, where h is the hedge ratio. Be sure to sign h to reflect whether you intend on buying or selling contracts