Minimum-Variance Futures Hedge
Medium finance interview practice: Minimum-Variance Futures Hedge.
A portfolio has a market value of USD 12,000,000. Its daily return volatility is 1.8%. A futures contract on the hedge instrument has a notional value of USD 250,000 and daily return volatility of 1.5%. The correlation between the portfolio and futures returns is 0.75. Using the minimum-variance hedge ratio, how many futures contracts should you short? Round to the nearest whole contract.