Copula-Based Price Risk Hedging Models
AbstractThe article deals with the issue of copula use in the program of market risk hedging. Copula-models performance is compared to the OLS-based ones. Fully parametric and semi-parametric approaches to copula-modeling are investigated. The copula-based models efficiency is illustrated by the fact of decreasing the daily profit-and-loss volatility of the hedged portfolio by simultaneously augmenting its total yield compared to the OLS-based hedge ratio computation during the back-testing period. Never-the-less, it is shown that copula-based approaches are able to outperform OLS-based ones only for direct hedging programs, while for cross-hedging ones OLS do better
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Bibliographic InfoArticle provided by Publishing House "SINERGIA PRESS" in its journal Applied Econometrics.
Volume (Year): 22 (2011)
Issue (Month): 2 ()
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Web page: http://appliedeconometrics.cemi.rssi.ru/
copula; direct hedging; cross hedging; hedge ratio;
Find related papers by JEL classification:
- C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
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Research Working Paper
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