CH 3 notations

Question 1

∆S

Answer 1

Change in spot price over the life of the hedge

Question 2

∆F

Answer 2

Change in futures price over the life of the hedge ?????

Question 3

σS

Answer 3

Standard deviation of S

Question 4

σF

Answer 4

Standard deviation of F

Question 5

ρ

Answer 5

Coefficient of correlation between ∆S and ∆F

Question 6

h ∗

Answer 6

Hedge ratio that minimizes the variance of the hedger’s position

Question 7

NA

Answer 7

Size of the position being hedged (units)

Question 8

QF

Answer 8

Size of one futures contract (units)

Question 9

N ∗

Answer 9

Optimal number of futures contracts for hedging