If You Need Three Securities to Hedge Three Factors, Can

question 6

Essay

If you need three securities to hedge three factors, can you do the follow- ing? Take two securities and make a third "synthetic" security from these two (i.e. it is the average of both prices). Use it to solve the system of equations. Is this valid?

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Definitions:

Average Total Assets

A financial metric calculated by taking the average of a company’s total assets at the beginning and the end of an accounting period to assess overall asset efficiency.

Total Asset Turnover

A financial ratio that measures a company’s efficiency in using its assets to generate revenue.

Net Sales

The revenue generated from goods or services sold by a business, minus returns, allowances for damaged or missing goods, and discounts.

Average Total Assets

The mean value of all assets owned by a company over a specific period, used to evaluate financial health and operational efficiency.