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The standard deviation of monthly changes in the spot price of live cattle is 1.1...

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Finance

The standard deviation of monthly changes in the spot price of live cattle is 1.1 cents/pound. The standard deviation of monthly changes in the futures price of live cattle for the closest contract is 1.5 cents/pound. The correlation between the futures price changes and the spot price changes is 0.6. It is now October 15. A beef producer (who is buying cows to turn into hamburgers) is committed to purchasing 2,000,000 of live cattle on November 15. The producer wants to use the December live-cattle futures contract to hedge its risk. Each contract is for the delivery of 40,000 pounds of cattle. How many futures contracts should the beef producer enter (after rounding to the nearest contract)?

Ignore the impact of daily settlement.

(Enter positive number for long contracts and negative number for short contracts)

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