Estimation of the optimal futures hedge
AbstractStandard approaches to designing a futures hedge often suffer from two major problems. First, they focus only on minimizing risk, so no account is taken of the impact on expected return. Second , in estima ting the hedge ratio, no allowance is made for time variation in the distribution of cash and futures price changes. This paper describes a technique for estimating the optimal futures hedge that corrects these problems and illustrates its use in hedging Treasury bonds with T-bond futures. Copyright 1988 by MIT Press.
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Bibliographic InfoPaper provided by Federal Reserve Bank of Kansas City in its series Research Working Paper with number 86-10.
Date of creation: 1986
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