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Muddahudda

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)?

Valores

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



Edited 1 time(s). Last edit at Thursday, January 27, 2011 at 02:52AM by jims2010.

liangfeng

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?