A Dynamic Minimum Variance Hedge
AbstractThe study presents an operational dynamic minimum variance hedge ratio (DMV) that allows for updates of both cash and futures positions. It is shown that DMV is more general than other operational models in the hedging literature, including the traditional static minimum-variance hedge ratio (SMV). Estimation of DMV is illustrated with a corn storage problem. The example reveals relatively noticeable differences among the magnitudes of DMV and alternative operational hedge ratios. However, gains in hedging effectiveness from using DMV instead of the simpler SMV are negligible.
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Bibliographic InfoPaper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 10833.
Date of creation: 01 Nov 1993
Date of revision:
Publication status: Published in American Journal of Agricultural Economics, November 1993, vol. 75 no. 4, pp. 1063-1071
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Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
Web page: http://www.econ.iastate.edu
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- Haigh, Michael S. & Holt, Matthew T., 2002.
"Combining Time-Varying And Dynamic Multi-Period Optimal Hedging Models,"
28593, University of Maryland, Department of Agricultural and Resource Economics.
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- Wang, Qizhi & Chidmi, Benaissa, 2009. "Cotton Price Risk Management across Different Countries," 2009 Annual Meeting, January 31-February 3, 2009, Atlanta, Georgia 46762, Southern Agricultural Economics Association.
- Lai, Jing-Yi & Myers, Robert J. & Hanson, Steven D., 2003. "Optimal On-Farm Grain Storage by Risk-Averse Farmers," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 28(03), December.
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