Long Hedge for Purchase of an Asset e Define F1: Futures price at time hedge is set up F2: Futures price at time asset is purchased S2: Asset price at time of purchase b2: Basis at time of purchase Cost of asset Gain on Futures F2-F1 Net amount paid S2-(F2-F1)=F1+b2 Options Futures, and other Derivatives, 8th edition Copyright@ John C Hull 2012
Long Hedge for Purchase of an Asset Define F1 : Futures price at time hedge is set up F2 : Futures price at time asset is purchased S2 : Asset price at time of purchase b2 : Basis at time of purchase Options, Futures, and Other Derivatives, 8th Edition, Copyright © John C. Hull 2012 6 Cost of asset S2 Gain on Futures F2 −F1 Net amount paid S2 − (F2 −F1 ) =F1 + b2
Short Hedge for sale of an asset e Define F1: Futures price at time hedge is set up 2: Futures price at time asset is sold S2: Asset price at time of sale b,. Basis at time of sale Price of asset Gain on futures F1-F2 Net amount received S2+(F1-F2)=F1+b2 Options, Futures, and Other Derivatives, 8th Edition Copyright C John C Hull 2012 7
Short Hedge for Sale of an Asset Options, Futures, and Other Derivatives, 8th Edition, Copyright © John C. Hull 2012 7 Define F1 : Futures price at time hedge is set up F2 : Futures price at time asset is sold S2 : Asset price at time of sale b2 : Basis at time of sale Price of asset S2 Gain on Futures F1 −F2 Net amount received S2 + (F1 −F2 ) =F1 + b2