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skcd, I something in it, but it is not in line with Hull. Looking example 12.5: FRM exam 2002- Question 35: A company expects to buy 1 mln barrels of crude oil in one year. The annualized volatility is12% The company chooses to hedge by buying a futures contract on Brent crude. The...

Dear skcd and David, I do not agree, in Hull, h* is defined as rho*sigma(S)/sigma(F). So, we agree on the h*. However, N* is defined as h*NA/Qf, so, without the minus sign (page 59 of Hull 6th edition). Leading to N* = -25, so selling. In fact I don't see any minus sign in Hull, contrary...

But, what about the explanation in Hull? Isn't that true? Johannes

Dear David, In the FRM handbook of Jorion, I think I have found a mistakes in the answers, but I am not quite sure. Hope you can verify. A bronze producer will sell 1,000mt of bronze in three months at the prevailing market price at that time. The SD of the price of bronze over a...

Dear David, I am currently doing some practice exams and I can't solve the question below. Can you please explain it to me? A credit-spread option has a notional amount of $50 million with a maturity of one year. The underlying security is a 10-year, semi-annual bond with a 7% coupon and a...

Hi David, thanks for your answer, but you calculate now $1,125, which is answer D and not C as OM calculated. I am getting a bit confused now. I understand your answer, but how did OM derive answer C then? And does this imply that C is incorrect? Thanks a lot, Johannes

Hi David, can you please outline how you derive answer C? I do not get it. Thanks, Johannes