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Estimation of the Optimal Futures Hedge


  • Cecchetti, Stephen G
  • Cumby, Robert E
  • Figlewski, Stephen


Standard 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.

Suggested Citation

  • Cecchetti, Stephen G & Cumby, Robert E & Figlewski, Stephen, 1988. "Estimation of the Optimal Futures Hedge," The Review of Economics and Statistics, MIT Press, vol. 70(4), pages 623-630, November.
  • Handle: RePEc:tpr:restat:v:70:y:1988:i:4:p:623-30

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    References listed on IDEAS

    1. Williamson, John & Bottrill, Anthony, 1971. "The Impact of Customs Unions on Trade in Manufactures," Oxford Economic Papers, Oxford University Press, vol. 23(3), pages 323-351, November.
    2. Marcus H. Miller, 1971. "Estimates of the Static Balance of Payments and Welfare Costs of United Kingdom Entry Into the Common Market," National Institute Economic Review, National Institute of Economic and Social Research, vol. 57(1), pages 69-83, August.
    3. Truman, E. M., 1972. "The production and trade of manufactured products in the EEC and EFTA: A comparison," European Economic Review, Elsevier, vol. 3(3), pages 271-290, November.
    4. Resnick, Stephen A. & Truman, Edwin M., 1973. "An empirical examination of bilateral trade in Western Europe," Journal of International Economics, Elsevier, vol. 3(4), pages 305-335, November.
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