Minimum Variance Hedge Ratio: Formula?

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Galli

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Is this right?
H = correlation (Rdc,Rfx) * [St. Dev (Rdc) / St. Dev (RFx)]
H = Cov (Rdc, Rfx) / Var(Rfx)
—————————————–
I feel like i’m picking out the bones of a fish trying to get this formula straight. Couldn’t they just have labled (with clarity) what the variables are on page 63….
 
If this formula comes in the exam, I am putting my points on the table. If I try to remember this, I will forget 5 other simple formulas.
 
It’s not a difficult formula.
Minimum or Optimal hedge ratio= Correlation (RDC; RFX) ×[Standard Deviation (RDC )/Standard Deviation (RFX)]
 
Galli wrote:
Is this right?
H = correlation (Rdc,Rfx) * [St. Dev (Rdc) / St. Dev (RFx)]
H = Cov (Rdc, Rfx) / Var(Rfx) * [St. Dev (Rdc) / St. Dev (RFx)]
Click to expand...
I believe this would be correct, now.
 
June06 wrote:
It’s not a difficult formula.
Minimum or Optimal hedge ratio= Correlation (RDC; RFX) ×[Standard Deviation (RDC )/Standard Deviation (RFX)]
Click to expand...
You all already know this formula from level 1 and 2!
It’s only a beta coefficient of a regression; e.g., like the beta of our lovely CAPM. So, do not make it more complicated than it is. :)
 
Would You Look at That wrote:
Galli wrote:
Is this right?
H = correlation (Rdc,Rfx) * [St. Dev (Rdc) / St. Dev (RFx)]
H = Cov (Rdc, Rfx) / Var(Rfx) * [St. Dev (Rdc) / St. Dev (RFx)]
Click to expand...
I believe this would be correct, now.
Click to expand...
I think so, too.
 
What reading is this formula from, i have never seen it?
 
Oh me too never heard of it. I remember in economic reading RISK PREMIUM under singer and terhaar = p * std * market sharp ratio. Beta = covar / market var. covar = p * sdt I * std j.
 
It’s buried in the currency management section - page 63. I was more or less trying to confirm Rfx or Rdc was on the denominator, wasn’t very clear in the text
Thanks for fixing the denominator on my second formula What you look…- tired eyes
 
JJ1337 wrote:
You all already know this formula from level 1 and 2!
It’s only a beta coefficient of a regression; e.g., like the beta of our lovely CAPM. So, do not make it more complicated than it is. :)
Click to expand...
- I was thinking the same thing, looks very similar to formula for Beta
 
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