In: Finance
Prove that Optimal Hedge Ratio, h * , for hedging strategies using futures equals to F S h = * , where σS is the standard deviation of the change in the spot price during the hedging period, ΔS; σF is the standard deviation of the change in the futures price during the hedging period, ΔF; ρ is the coefficient of correlation between ΔS and ΔF.