Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. on june 1, an energy trader is committed to purcha

On June 1, an energy trader is committed to purchase 50,000 barrels of crude oil...

70.2K

Verified Solution

Question

Finance

  1. On June 1, an energy trader is committed to purchase 50,000 barrels of crude oil on November 15 and he wants to use the December crude oil futures (six-month contracts) to hedge risk. Currently the December futures price is $25 per barrel. The standard deviation of monthly changes in the price of crude oil is 2.1, and the standard deviation of monthly changes in the price of six-month crude oil futures is 1.2. The correlation between the futures price changes and the spot price changes is 0.7. Each contract is for the delivery of 1,000 barrels of crude oil. How many futures contracts should the company use to hedge its future purchase? What futures position should the company take?

Answer & Explanation Solved by verified expert
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students