Which of the Following Is a Correct Property of Variance

question 15

Multiple Choice

Which of the following is a correct property of variance in hedging with regression?

• A)If the hedging instrument has a negative marginal variance,then a small reduction in the holdings of the financial instrument in the combination reduces variance.
• B)If the hedging instrument has a positive marginal variance,then a small increase in the holdings of the financial instrument reduces the variance of the combination.
• C)When the financial instrument has zero covariance with the combination of the financial instrument and the cash flow,the variance be minimized.
• D)The combination of the cash flow and the hedge instrument that minimizes variance can have either a positive marginal variance or a negative marginal variance with the financial instrument.

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