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Futures hedging using dynamic models of the variance/covariance structure

✍ Scribed by Ponladesh Poomimars; John Cadle; Michael Theobald

Publisher: John Wiley and Sons
Year: 2003
Tongue: English
Weight: 231 KB
Volume: 23
Category: Article
ISSN: 0270-7314
DOI: 10.1002/fut.10062

No coin nor oath required. For personal study only.

✦ Synopsis

Abstract

Dynamic futures‐hedging ratios are estimated across seven markets using generalized models of the
variance/covariance structure. The hedging performances of the resultant dynamic strategies are then compared
with static and naïve strategies, both in‐ and out‐of‐sample. Bayesian‐adjusted
hedge ratios also are employed as error purgers. The empirical results indicate that the
generalized dynamic models are well specified and that their use in determining optimal hedge ratios can lead to
improvements in hedging performance as measured by the volatilities of the returns on the optimally hedged
position. © 2003 Wiley Periodicals, Inc. Jrl Fut Mark 23:241–260, 2003

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