Before you can use the hedging strategies such as a forward market hedge,options market hedge,and so on,you should consider running a regression of the form $P = a + b \times S + e$ .When reviewing the output,you should initially focus on

Question

Quizplus · Accepted Answer

The slope coefficient b is important because it represents the change in the price of the hedging instrument for every unit change in the price of the underlying asset. This information is crucial in determining the appropriate hedge ratio to use in a forward market hedge or options market hedge. The intercept a and mean square error (MSE) are also important, but not as critical as the slope coefficient. R² is not a valid output in regression analysis.

Before You Can Use the Hedging Strategies Such as a Forward