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A note on asymmetric stochastic volatility and futures hedging

✍ Scribed by Donald Lien

Publisher
John Wiley and Sons
Year
2005
Tongue
English
Weight
82 KB
Volume
25
Category
Article
ISSN
0270-7314

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✦ Synopsis

This note incorporates asymmetric responses to good and bad news within a stochastic volatility framework. It is shown that the asymmetry leads to a greater average optimal hedge ratio. Moreover, the ratio increases with increasing degree of asymmetry. On the other hand, asymmetry has no impact on the hedging performance. The result is consistent with the empirical finding of Brooks, Henry, and Persand (2002) where GARCH models are employed.

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