If Changes in Spot and Futures Prices Are Perfectly Correlated $+ 1$

question 25

Multiple Choice

If changes in spot and futures prices are perfectly correlated over the horizon of a hedge, then

• A) The minimum variance hedge ratio is \(+ 1\) .
• B) The variance of cash flows from a hedged position under the minimum-variance hedge ratio is zero.
• C) The net cash flow at maturity of the hedge is zero.
• D) The standard deviation of spot price changes must equal the standard deviation of futures price changes.