Abstract
The key issues of hedging include the determination of the optimal hedge ratio and the selection of hedging horizon's length, futures contract and data frequency. Through the estimation of optimal hedge ratios obtained by different methods and comparison of hedging effectiveness of those methods, it is found that the generalized autoregressive conditional heteroskedasticity (GARCH) hedge ratio has the best hedging effectiveness among them. Besides, to obtain a better hedging effectiveness, it is necessary to let the hedging horizon's length match the data frequency, the expired time of futures contracts should be close to transaction date and the data frequency should make the original data have a lower volatility.
| Original language | English |
|---|---|
| Pages (from-to) | 167-170 |
| Number of pages | 4 |
| Journal | Journal of Beijing Institute of Technology (English Edition) |
| Volume | 17 |
| Issue number | SUPPL. |
| Publication status | Published - Dec 2008 |
Keywords
- GARCH
- Hedge ratio
- Hedging effectiveness
- Minimum variance