The hedging problem is examined where futures prices obey the cost‐of‐carry model. The resultant hedging model explicitly incorporates maturity effects in the futures basis. Formulas for the optimal static and dynamic hedges are derived. Although these formulas are developed for the case of...

The correlation structure of asset returns is a crucial parameter in risk management as well as in theoretical finance. In practice, however, the true correlation structure between the returns of assets can easily become obscured by time variation in the observed correlation structure and in the...