✦ LIBER ✦

Futures hedging under mark-to-market risk

✍ Scribed by Donald Lien; Anlong Li

Publisher: John Wiley and Sons
Year: 2003
Tongue: English
Weight: 91 KB
Volume: 23
Category: Article
ISSN: 0270-7314
DOI: 10.1002/fut.10068

No coin nor oath required. For personal study only.

✦ Synopsis

Abstract

This article introduces mark‐to‐market risk into the conventional futures hedging framework. It
is shown that a hedger concerned with maximum daily loss will considerably reduce his futures position when the
risk is taken into account. In case of a moderate hedge horizon, the hedger will hedge approximately 80% of
his spot position.

The effect of mark‐to‐market risk decreases very slowly as the hedge horizon increases. If the
hedger is concerned with average daily loss, the effect is minimal for a moderate hedge horizon. © 2003 Wiley
Periodicals, Inc. Jrl Fut Mark 23:389–398, 2003

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