Cross Hedge

Minimum Variance Hedge Ratio

Aug 31, 2019
Hedging, Cross Hedge, Minimum Variance Hedge Ratio

This post briefly explains what’s the minimum variance hedge ratio and how to derive it in a cross hedge, where the asset to be hedged is not the same as underlying asset. The Hedge Ratio $h$ The hedge ratio $h$ is the ratio of the size of the hedging position to the exposure of the asset to be hedged: $N_A$: the units of asset held to be hedged ($A$), i. ...