Exam 5: Hedging With Futures Forwards

The change in spot prices has a standard deviation of $1. The change in futures prices has a standard deviation of $1.25. The correlation of spot and futures prices is 1. If the daily risk free interest rate is $R = 1.000055$ (corresponding to a continuously-compounded rate of 2% per year), then what is the tailed hedge ratio for a spot position hedged by a 30-day futures contract?

(Multiple Choice)

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Question 21

The tailed minimum-variance hedge ratio becomes lower in comparison to the untailed one when

(Multiple Choice)

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Question 22

The correlation between changes in price of a spot asset and futures asset is 90%. The standard deviation of changes in spot prices is $2, and that of futures prices is $2.50. The hedge ratio that minimizes hedge variance is

(Multiple Choice)

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Question 23

The correlation between changes in price of a spot asset and futures asset is 99%. The standard deviation of changes in spot prices is $2, and that of futures prices is $3. What is the standard deviation of a position that is long 5 units of the spot asset and is hedged by shorting 4 units of futures?

(Multiple Choice)

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Question 24

If changes in spot and futures prices are perfectly correlated over the horizon of a hedge, then

(Multiple Choice)

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Question 25

Refer again to the data in Question 23. The minimum-variance hedge, if EUR were to be used for the hedge, is a forward contract calling for the delivery of

(Multiple Choice)

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Question 26

Showing 21 - 26 of 26

The tailed minimum-variance hedge ratio becomes lower in comparison to the untailed one when

The correlation between changes in price of a spot asset and futures asset is 90%. The standard deviation of changes in spot prices is $2, and that of futures prices is $2.50. The hedge ratio that minimizes hedge variance is

If changes in spot and futures prices are perfectly correlated over the horizon of a hedge, then

Refer again to the data in Question 23. The minimum-variance hedge, if EUR were to be used for the hedge, is a forward contract calling for the delivery of

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