Suppose that you will be delivering 150,000 barrels of crude oil in February.  Currently, the February WTI contract is at $51.04 per barrel.  The oil you will deliver isn't exactly WTI.  Based on historical data you estimate that the change in the WTI spot price and the change in the spot price of the grade you will deliver have the same standard deviation but the correlation between these price changes is only 0.95.  What position do you take in WTI futures to get the best hedge?

-Do you go long or short these contracts?

-How many futures contracts do you enter into? (Do not round)

Answer rating: 100% (QA)

SOLUTION To determine the position to take in WTI futures to get the best hedge we need to calculate ... View the full answer