Question

Suppose that in Example 3.2 of Section 3.3 the company decides to use a hedge ratio of 0.8 . How does the decision affect the way in which the hedge is implemented and the result?

   Suppose that in Example 3.2 of Section 3.3 the company decides to use a hedge ratio of 0.8 . How does the decision affect the way in which the hedge is implemented and the result?

Options, Futures, and Other Derivatives

Options, Futures, and Other Derivatives

John C. Hull 10th Edition

Chapter 3, Problem 12

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Step 1

The hedge ratio is the ratio of the size of the position taken in futures contracts to the size of the exposure. A hedge ratio of 0.8 means that the company is hedging 80% of its exposure. Show more…

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Suppose that in Example 3.2 of Section 3.3 the company decides to use a hedge ratio of 0.8 . How does the decision affect the way in which the hedge is implemented and the result?

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