Instructional Video: Using Futures for Hedging

Topic Progress:

Hull, Chapter 3 is a 37 minute instructional video analyzing the following concepts:

* Define and differentiate between short and long hedges and identify their appropriate use.
* Describe the arguments for and against hedging and the potential impact of hedging on firm profitability.
* Define the basis and the various sources of basis risk, and explain how basis risks arise when hedging with Futures.
* Define cross hedging, and compute and interpret the minimum variance hedge ratio and hedge effectiveness.
* Compute the optimal number of Futures contracts needed to hedge an exposure, and explain and calculate the “tailing the hedge” adjustment.
* Explain how to use stock index Futures contracts to change a stock portfolio’s beta.
* Explain the term “rolling the hedge forward” and describe some of the risks that arise from this strategy.

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