18. You are asked to hedge price changes in a security S over a maturity T. The correlatio...

18. You are asked to hedge price changes in a security S over a maturity T. The correlations of price changes in S, and price changes in futures contracts F₁, F₂ are given by the following correlation matrix:

If the standard deviations of the price changes on the three assets are given by

then, find the minimum-variance hedge for S using both futures contracts F₁ and F₂. Express your solution in terms of the number of units in the futures contracts F₁ and F₂ to hedge a 1 unit position in S. What can you say about the solution(s) you have arrived at?