Cross Hedging Explained: Find Optimal # of Futures Contracts
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- Äas pĆidĂĄn 31. 05. 2024
- Unlock the secrets of cross hedging with expert Ryan O'Connell, CFA, FRM, as we delve into the optimal number of futures contracts for your investment strategy. Discover the essential historical data required to construct a robust cross hedge, learn how to calculate the minimum variance hedge ratio with precision, and master the calculation of the optimal number of futures contracts to maximize your portfolio's performance. This tutorial also walks you through a step-by-step process to assess potential gains and losses on cross hedged positions, equipping you with the analytical skills to make informed hedging decisions. Join us to elevate your financial acumen and navigate the complexities of cross hedging with confidence.
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Chapters:
0:00 - What is Cross Hedging?
1:00 - Historical Data Needed to Find Optimal Hedge
1:27 - Calculate Minimum Variance Hedge Ratio
3:20 - Calculate Optimal # of Futures Contracts
4:44 - Calculate Gains & Losses on Cross Hedged Positions
*Disclosure: This is not financial advice and should not be taken as such. The information contained in this video is an opinion. Some of the information could be wrong. This channel is owned and operated by Portfolio Constructs LLC. Some of the links above are affiliate links, meaning, at no additional cost to you, I will earn a commission if you click through and make a purchase.
đ Tutor With Me: 1-On-1 Video Call Sessions Available
âș Join me for personalized finance tutoring tailored to your goals: ryanoconnellfinance.com/finance-tutoring/
đšâđŒ My Freelance Financial Modeling Services:
âș Custom financial modeling solutions tailored for your needs: ryanoconnellfinance.com/freelance-finance-services/
đ FRM Exam Prep Discount - AnalystPrep:
âș Get 20% off FRM Part 1 and Part 2 complete courses with promo code "RYAN20". Explore here: analystprep.com/shop/frm-part-1-and-part-2-complete-course-by-analystprep/?ref=mgmymmr
đ CFA Exam Prep Discount - AnalystPrep:
âș Get 20% off CFA Level 1, 2, and 3 complete courses with promo code "RYAN20". Explore here: analystprep.com/shop/all-3-levels-of-the-cfa-exam-complete-course-by-analystprep/?ref=mgmymmr
đŸ Download Free Excel File:
âș Grab the file from this video here: ryanoconnellfinance.com/product/cross-hedging-excel-toolkit/
Could not be explained better. Thanks!
This is great I've just started studying derivatives for my bachelors in finance, so these videos are super helpful as always.
I'm really glad to hear you're getting value out of them Mitchell!
Helpful as always
Thank you for the feedback!
Amazing work đ
Thank you! Cheers!
Thanks, I'm self-studying this stuff.
Glad I can help and good on your for making the choice to study this stuff under your own will-power!
Hi Ryan, Thank you for your excellent video! I appreciate the insights youâve shared.
I have a question and would be grateful if you could address it:
âą What is the quantity of one futures contract and how can I find that value?
âą Is it possible to use the notional value of the asset being hedged and the futures contract to calculate the hedge ratio?
âą Could you please create some videos about the exotic products in derivatives?
My pleasure!
Quantity: It depends on the futures contract. You can go on CME's website and look at the quantity underlying any futures contract. Soybean futures are actually underlied by 5,000 bushels on CME.
You need the correlation between the two assets to calculate the optimal hedge ration
I can look into creating some videos on exotic derivatives in the future!
Hi mate, got a project on this topic for uni and Iâve got a bit stuck. Do you know how I would find the forward rates in a situation with a maturity mismatch. So instead of hedging with a different currency you have a contract that expires after when you need to pay a supplier for example?
Hi there! To find forward rates in a scenario with maturity mismatch, you can use the interest rate parity formula, which relates spot exchange rates, interest rates, and forward exchange rates. In your case, you'd adjust for the time difference by incorporating the interest rates for the respective durations. This method helps align the value of your future contract with the actual time of payment to the supplier, ensuring a more accurate hedge. Remember, the key is to adjust the forward rate to match the timing of your payment obligation.
@@RyanOConnellCFA hi mate thanks for the insight, just one little question about adjusting for the time. In my project itâs for making a payment after 6 months but the contract is for 12 months. The interest rate for 12 months is just double the interests rates for 6 months. So would the future rates in this case be the same as the future rates for just 6 months?
@@MrJaffagames in your case, if the 12-month interest rate is simply double the 6-month rate, the forward rates for 6 and 12 months won't be the same due to the nonlinear nature of interest compounding. You need to adjust the 12-month rate to reflect the actual 6-month period, which involves calculating the equivalent semi-annual rate, not just halving the annual rate. This adjusted rate will then give you a more accurate forward rate for your 6-month payment period.
Epic.
Too high IQ for me
Lol I know that's not true Ron
@@RyanOConnellCFA
Ok sir, I will try.
@@ron3252 You got this đȘ