What is minimum-variance hedge ratio?Minimum-Variance Hedge Ratio
The ratio that makes the hedged portfolio swing the least = correlation × spot volatility ÷ futures volatility.
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- Hedging StrategiesCross Hedging: Using a Related Instrument
An airline wants to hedge jet fuel, but there's no good jet fuel futures contract. It has to borrow the closest-priced instrument instead.
- Hedging StrategiesHedge Ratio and Basis Risk
Spot and futures don't move in lockstep. How much should you hedge? The optimal ratio depends on correlation and volatility.
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Go to “Cross Hedging: Using a Related Instrument”