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Unformatted text preview: The net loss is2,775 + 2,300 = $475 4 Short hedge lost Notice that here (but not always) the net loss per ounce of gold is equal to the change in the basis. bt  b0 = (St Ft)  (S0  F0)4.75 = (405.65408.50)  (433.40431.50) 5 Choice of Contract Choose a delivery month that is as close as possible to, but later than, the end of the life of the hedge When there is no futures contract on the asset being hedged, choose the contract whose futures price is most highly correlated with the asset price. 6 1:1 Hedge ratio Our gold dealer used a 1:1 hedge ratio. Here the hedge ratio, h, is h = size of futures position size of cash market position Was this optimal? A minimum variance hedge ratio would minimize the variance of possible outcomes. 7...
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 Spring '12
 LucyAckert

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