medium · FRM Part 1
If the standard deviation of futures price changes (σ_F) is much larger than the standard deviation of spot price changes (σ_S), what is the likely impact on the minimum-variance hedge ratio?
- The hedge ratio will be less than the correlation (ρ).
- The hedge effectiveness will decrease.
- The hedge ratio will be greater than one.
- The optimal number of contracts will increase.
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