1. Assume that the standard deviation of the quarterly change of commodity price is 0.65 USD, the standard deviation of the quarterly change of commodity futures price is 0.8/kloc-0 USD, and the correlation coefficient between futures and spot price is 0.8. What is the best hedging ratio for a 3-month contract? What does this mean?

Tip: Calculate the best hedging ratio.

Known conditions: standard deviation and correlation coefficient of spot and futures price changes

The optimal hedging ratio is the correlation coefficient multiplied by the ratio of the standard deviation of spot price change to the standard deviation of futures price change.

Meaning: The result is the number of futures hedged by one unit.