financial derivative

Download the heating oil data
a. Using R, Stata, SAS or another language, run a simple regression of the change in the spot price on the change in the futures price. Use all observations.

b. Determine the hedge ratio from your R, Stata, SAS or another language output. Note: if you do not know how to run a regression using R, Stata, SAS or another language, use Excel and the procedure outlined in your text book to determine the hedge ratio.

c. For each date calculate the value of a portfolio consisting of 42,000 gallons of spot physical and the value of the futures position (assuming you were able to buy the same number of futures as the hedge ratio from part b. For example, if the hedge ratio from part b is .93, then assume you are able to buy 0.93 futures contracts.

d. Plot the value of your portfolio (from part d) over time.

e. Comment on your results from part d.

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