IN EXCELSuppose that you hold $2,000$ shares of a Tesla that you wish to sell next

week. You are worried about Tesla's price decreasing over the next week.

So$,$ you decide to hedge your position by entering futures contracts in the

S&P$500.$

a$.$ What is the term for hedging one underlying asset $($e$.$g$.,$ Tesla$)$ using

a derivative asset on another asset $($e$.$g$.,$ S&P$500$ Index$)$

b$.$ Using the provided Excel file "Problem $7.$xlsx$"$ on Blackboard

calculate the optimal hedge ratio. To do so$,$ you need to carry out

the following steps

i$.$ Calculate price changes and returns for Tesla and S&P$500$

ii$.$ Calculate volatilities, covariances, and correlations for price

changes and returns

iii. Calculate the optimal hedge ratio using both the price changes

and the returns formulas.

iv$.$ For the futures contract, each point of the S&P$500$ is worth

$$50.$ Based on this and your calculations in step iii. above

derive the optimal number of contracts