http://www.bionicturtle.com/premium/editgrid/2008_frm_hull_derivatives_minimum_variance_hedge/
In re the above (I am looking at the XLS version...)
You are trying to illustrate the efficacy of the hedge by wondering what happens if the jet price increases by $1.00.
You compute that the futures value will increase by: 1 / (correlation coeff)^2
What is the basis for this computation? I have not seen this relationship before....Can you elucidate?
--sridhar
In re the above (I am looking at the XLS version...)
You are trying to illustrate the efficacy of the hedge by wondering what happens if the jet price increases by $1.00.
You compute that the futures value will increase by: 1 / (correlation coeff)^2
What is the basis for this computation? I have not seen this relationship before....Can you elucidate?
--sridhar