questions related to curriculum 300, somebody, remember, solution

Rasec

level 3, volume 5, page 300. Can somebody tell me for the solution 2, how you get the return on the hedged portfolio is equal to 0 percent (remember that we neglected the cross-product term)?

thecfawannabe

asQ1: minimum-variance hedge ration h=h1+h2=1-0.2=0.8
R(hedged)=R(LC)+s(1-h)=1%+(-5%)*(1-0.8)=0
not consider cross-product term

Rasec

Thank you very much!
If you do not mind, may I have your email address so that I can ask you questions in the future?

MiniMe7

jimswang79@hotmail.com