If the Futures Contract Used to Hedge a Spot Position $h ^ { * } = \rho \times \sigma ( \Delta S ) / \sigma ( \Delta F )$

question 5

Multiple Choice

If the futures contract used to hedge a spot position is marked-to-market daily, then the minimum-variance hedge ratio formula $h ^ { * } = \rho \times \sigma ( \Delta S ) / \sigma ( \Delta F )$ computed ignoring daily resettlement is, in absolute terms,

• A) Biased downwards.
• B) Unbiased.
• C) Biased upwards.
• D) Biased downwards only if interest rates are nonzero.

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