The Cross-Currency Hedging Performance of Implied Versus Statistical Forecasting Models
✍ Scribed by Chris Brooks; James Chong
- Publisher
- John Wiley and Sons
- Year
- 2001
- Tongue
- English
- Weight
- 225 KB
- Volume
- 21
- Category
- Article
- ISSN
- 0270-7314
- DOI
- 10.1002/fut.2104
No coin nor oath required. For personal study only.
✦ Synopsis
Abstract
This article examines the ability of several models to generate optimal hedge ratios. Statistical models
employed include univariate and multivariate generalized autoregressive conditionally heteroscedastic
(GARCH) models, and exponentially weighted and simple moving averages. The variances of the hedged
portfolios derived using these hedge ratios are compared with those based on market expectations implied by the
prices of traded options. One‐month and three‐month hedging horizons are considered for four
currency pairs. Overall, it has been found that an exponentially weighted moving‐average model leads to
lower portfolio variances than any of the GARCH‐based, implied or time‐invariant approaches.
© 2001 John Wiley & Sons, Inc. Jrl Fut Mark 21:1043–1069, 2001