Riskiness-minimizing spot-futures hedge ratio
AbstractIn this paper, we propose a new spot-futures hedging method that determines the optimal hedge ratio by minimizing the riskiness of hedged portfolio returns, where the riskiness is measured by the index of Aumann and Serrano (2008). Unlike the risk measurements widely used in the literature, the riskiness index employed in our method satisfies monotonicity with respect to stochastic dominance. We also provide an empirical example to demonstrate how to estimate and test this optimal hedge ratio in equity data by the method-of-moments.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Banking & Finance.
Volume (Year): 40 (2014)
Issue (Month): C ()
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Web page: http://www.elsevier.com/locate/jbf
Riskiness index; Optimal hedge ratio; Method-of-moments;
Find related papers by JEL classification:
- C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
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