Multiple Choice
Which of the following is a correct property of variance in hedging with regression?
A) If the hedging instrument has a negative marginal variance,then a small reduction in the holdings of the financial instrument in the combination reduces variance.
B) If the hedging instrument has a positive marginal variance,then a small increase in the holdings of the financial instrument reduces the variance of the combination.
C) When the financial instrument has zero covariance with the combination of the financial instrument and the cash flow,the variance be minimized.
D) The combination of the cash flow and the hedge instrument that minimizes variance can have either a positive marginal variance or a negative marginal variance with the financial instrument.
Correct Answer:
Verified
Correct Answer:
Verified
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