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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
114 Derivatives and Risk Management
6.8 The Hedge Ratio
In hedging, the most important variable is the hedge ratio. is is dened as the ratio of the size of the
exposure to the size of the position taken in the futures contract. In order to minimize risk, the appropri-
ate hedge ratio needs to be determined.
e size of exposure is calculated as:
Size of exposure = Quantity of assets exposed × Spot price of the asset exposed
e size of position taken in futures is calculated as:
Size of position in futures = Contract size × Number of futures contracts
e hedge ratio is usually termed as the minimum variance hedge ratio and is calculated as shown ...
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Publisher Resources

ISBN: 9781299447547Publisher Website