Calculating the optimal hedge ratio: constant, time varying and the Kalman Filter approach
A crucial input in the hedging of risk is the optimal hedge ratio - defined by the relationship between the price of the spot instrument and that of the hedging instrument. Since it has been shown that the expected relationship between economic or financial variables may be better captured by a time varying parameter model rather than a fixed coefficient model, the optimal hedge ratio, therefore, can be one that is time varying rather than constant. This study suggests and demonstrates the use of the Kalman Filter approach for estimating time varying hedge ratio - a procedure that is statistically more efficient and with better forecasting properties.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 13 (2006)
Issue (Month): 5 ()
|Contact details of provider:|| Web page: http://www.tandfonline.com/RAEL20|
|Order Information:||Web: http://www.tandfonline.com/pricing/journal/RAEL20|
When requesting a correction, please mention this item's handle: RePEc:taf:apeclt:v:13:y:2006:i:5:p:293-299. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Chris Longhurst)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.