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Unformatted text preview: t to the value of the asset in question. The change in the value of the hedgers position between time t 1 and t 2 is S h F. We may denote the variance of S by 2 S and the variance of F by 2 F . Then, the variance of the hedgers position is = 2 S + h 2 2 F 2 h S F , where is the correlation between S and F and where, consequently, 2 S 2 F is the covariance of S and F . The value of h which minimises is h = S F . 1...
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- Spring '12