Question jetblue will purchase 5500000 gallons of jet fuel, Ask an Expert

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Question: JetBlue will purchase 5,500,000 gallons of jet fuel in 3 month and will hedge with heating oil futures, which are for 42,000 gallons. From historical data sF = 0.0423, sS = 0.0383, and ? = 0.929. Spot price on jet fuel = $1.99 and F0 on heating oil = $2.09, what is the optimal number of contracts assuming daily settlement?

a. Using futures contract what is the optimal number of contracts to buy or sell?

b. Using forwards contracts what is the optimal number of contracts to buy or sell?

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