Problem

23. You are trying to hedge the sale of a forward contract on a security A. Suggest a fram...

23. You are trying to hedge the sale of a forward contract on a security A. Suggest a framework you might use for making a choice between the following two hedging schemes:

(a) Buy a futures contract B that is highly correlated with security A but trades very infrequently. Hence, the hedge may not be immediately available.

(b) Buy a futures contract C that is poorly correlated with A but trades more frequently.

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Solutions For Problems in Chapter 5