Question

The following table gives data on monthly changes in the spot price and the futures price for a certain commodity. Use the data to calculate a minimum variance hedge ratio. (Do not make an adjustment for daily settlement.) $$ \begin{array}{llllll} \hline \text { Spot price change } & +0.50 & +0.61 & -0.22 & -0.35 & +0.79 \\ \text { Futures price change } & +0.56 & +0.63 & -0.12 & -0.44 & +0.60 \\ \hline \text { Spot price change } & +0.04 & +0.15 & +0.70 & -0.51 & -0.41 \\ \text { Futures price change } & -0.06 & +0.01 & +0.80 & -0.56 & -0.46 \end{array} $$

   The following table gives data on monthly changes in the spot price and the futures price for a certain commodity. Use the data to calculate a minimum variance hedge ratio. (Do not make an adjustment for daily settlement.)
$$
\begin{array}{llllll}
\hline \text { Spot price change } & +0.50 & +0.61 & -0.22 & -0.35 & +0.79 \\
\text { Futures price change } & +0.56 & +0.63 & -0.12 & -0.44 & +0.60 \\
\hline \text { Spot price change } & +0.04 & +0.15 & +0.70 & -0.51 & -0.41 \\
\text { Futures price change } & -0.06 & +0.01 & +0.80 & -0.56 & -0.46
\end{array}
$$

Options, Futures, and Other Derivatives

John C. Hull 10th Edition

Chapter 3, Problem 29

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Step 1

To calculate the covariance, we need to find the average of the product of the spot price changes and the futures price changes. Using the given data, we have: Spot price change: +0.50, +0.61, -0.22, -0.35, +0.79, +0.04, +0.15, +0.70, -0.51, -0.41 Futures price Show more…

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The following table gives data on monthly changes in the spot price and the futures price for a certain commodity. Use the data to calculate a minimum variance hedge ratio. (Do not make an adjustment for daily settlement.) $$ \begin{array}{llllll} \hline \text { Spot price change } & +0.50 & +0.61 & -0.22 & -0.35 & +0.79 \\ \text { Futures price change } & +0.56 & +0.63 & -0.12 & -0.44 & +0.60 \\ \hline \text { Spot price change } & +0.04 & +0.15 & +0.70 & -0.51 & -0.41 \\ \text { Futures price change } & -0.06 & +0.01 & +0.80 & -0.56 & -0.46 \end{array} $$

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