You Are Hedging a Spot Position with Futures

question 9

Multiple Choice

You are hedging a spot position with futures. If the spot asset is less volatile than the futures, and there is basis risk, which of the following is surely false:

• A) The minimum-variance hedge ratio is greater than 1.
• B) The minimum-variance hedge ratio is less than or equal to 1.
• C) The minimum-variance hedge ratio is negative.
• D) The minimum-variance hedge ratio is not equal to 1.

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