Question

Suppose that in Table 3.5 the company decides to use a hedge ratio of 1.5 . How does the decision affect the way the hedge is implemented and the result?

   Suppose that in Table 3.5 the company decides to use a hedge ratio of 1.5 . How does the decision affect the way 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 19

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The hedge ratio of 1.5 means that for every 1 unit of the underlying asset, the company will hedge with 1.5 units of the hedging instrument. This implies that the company will over-hedge its position. Show more…

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Suppose that in Table 3.5 the company decides to use a hedge ratio of 1.5 . How does the decision affect the way the hedge is implemented and the result?

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