The minimum variance hedge ratio uses current information while the price sensitivity hedge ratio uses past information.

Question

Quizplus · Accepted Answer

Both the minimum variance hedge ratio and the price sensitivity hedge ratio can use both current and historical information. The key difference lies in their approaches: the minimum variance hedge ratio focuses on minimizing the variance of the portfolio, while the price sensitivity hedge ratio (also known as the beta hedge ratio) focuses on matching the price movements of the portfolio with those of the hedge instrument, often using historical data to estimate sensitivities.

The Minimum Variance Hedge Ratio Uses Current Information While the Price