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Derivatives and Risk Management, 1st Edition
book

Derivatives and Risk Management, 1st Edition

by Sundaram Janakiramanan
May 2024
Intermediate to advanced content levelIntermediate to advanced
542 pages
27h 26m
English
Pearson India
Content preview from Derivatives and Risk Management, 1st Edition
132 Derivatives and Risk Management
Since the shares you own are on Gram Bank stock, you would like to use Gram Bank futures. Since there are no
futures available on the Gram Bank shares, you need to use futures on some related stock whose price changes are
highly correlated to the price changes of the Gram Bank shares. Among the Canara Bank futures and HDFC Bank
futures, the HDFC Bank futures have a higher correlation and hence HDFC Bank futures will be used for the hedge.
To decide how many contracts are to be used, we rst need to calculate the hedge ratio (h*):
h* = r ×
s
s
S
F
= 0.95 ×
22
145
= 0.1441
Number of futures contracts = N* = h* × ...
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Publisher Resources

ISBN: 9781299447547Publisher Website