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Futures hedging under mark‐to‐market risk

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  • Donald Lien
  • Anlong Li

Abstract

This article introduces mark‐to‐market risk into the conventional futures hedging framework. It is shown that a hedger concerned with maximum daily loss will considerably reduce his futures position when the risk is taken into account. In case of a moderate hedge horizon, the hedger will hedge approximately 80% of his spot position. The effect of mark‐to‐market risk decreases very slowly as the hedge horizon increases. If the hedger is concerned with average daily loss, the effect is minimal for a moderate hedge horizon. © 2003 Wiley Periodicals, Inc. Jrl Fut Mark 23:389–398, 2003

Suggested Citation

  • Donald Lien & Anlong Li, 2003. "Futures hedging under mark‐to‐market risk," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 23(4), pages 389-398, April.
    • Handle: RePEc:wly:jfutmk:v:23:y:2003:i:4:p:389-398
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    Cited by:

    1. Chang, Yuan-Chieh & Chen, Min-Nan, 2016. "Service regime and innovation clusters: An empirical study from service firms in Taiwan," Research Policy, Elsevier, vol. 45(9), pages 1845-1857.

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