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Multiperiod optimal hedging ratios: Methodological aspects and application to wheat markets

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  • Gianluca, Stefani
  • Tiberti, Marco

Abstract

This work deals with methodological and empirical issues related to multiperiod optimal hedging OLS estimators. We propose an analytical formula for the multiperiod minimum variance hedging ratio starting from the triangular representation of a cointegrated system DGP. Since estimating the hedge ratio matching the frequency of data with the hedging horizon leads to a sample size reduction problem, we carry out a Monte Carlo study to investigate the pattern and hedging efficiency of OLS hedging ratio based on overlapping vs non-overlapping observations exploring a range of hedging horizons and sample sizes. Finally, we applied our approach to real data for a cross hedging related to soft wheat.

Suggested Citation

  • Gianluca, Stefani & Tiberti, Marco, 2014. "Multiperiod optimal hedging ratios: Methodological aspects and application to wheat markets," 2014 International Congress, August 26-29, 2014, Ljubljana, Slovenia 182787, European Association of Agricultural Economists.
    • Handle: RePEc:ags:eaae14:182787
    DOI: 10.22004/ag.econ.182787
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    1. Hansen, Lars Peter & Hodrick, Robert J, 1980. "Forward Exchange Rates as Optimal Predictors of Future Spot Rates: An Econometric Analysis," Journal of Political Economy, University of Chicago Press, vol. 88(5), pages 829-853, October.
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    3. Lien, Da-Hsiang Donald, 1992. "Optimal hedging and spreading in cointegrated markets," Economics Letters, Elsevier, vol. 40(1), pages 91-95, September.
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    5. Phillips, P.C.B., 1990. "Optimal Structural Estimation of Triangular Systems: I. The Stationary Case," Econometric Theory, Cambridge University Press, vol. 6(02), pages 285-286, June.
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    7. Phillips, Peter C.B. & Dolado, Juan J. & Boswijk, H. Peter, 1991. "Optimal Structural Estimation of Triangular Systems: II. The Nonstationary Case," Econometric Theory, Cambridge University Press, vol. 7(04), pages 549-558, December.
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    Cited by:

    1. Huang, Jinbo & Ding, Ashley & Li, Yong & Lu, Dong, 2020. "Increasing the risk management effectiveness from higher accuracy: A novel non-parametric method," Pacific-Basin Finance Journal, Elsevier, vol. 62(C).

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