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The standard deviation of monthly changes in the spot price of live cattle is 1.15...

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Finance

The standard deviation of monthly changes in the spot price of live cattle is 1.15 cents per pound. The standard deviation of monthly changes in the futures price of live cattle futures for the closest contract is 1.3 cents per pound. The correlation between the monthly spot and futures price changes is 0.77. Today is October 15. Bigger Better Burgers (BBB) is committed to purchasing 228 thousand pounds of live cattle on November 15 in order to supply its chain of hamburger restaurants. BBB plans to use the December live-cattle futures contract to hedge its risk. The underlying for each futures contract is 40,000 pounds of live cattle. BBB only buys free range cattle that feed on gluten free, organic Kentucky blue grass. BBBs financial analyst optimizes the hedge ratio with cross hedging, because the cattle that it buys are a different grade than cattle usually delivered under terms of CME live cattle futures contracts. What is the optimal number of futures contracts for this hedge? Assume a static hedge. Round your answer in to the nearest integer value

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