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A note on asymmetric stochastic volatility and futures hedging

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  • Donald Lien

Abstract

This note incorporates asymmetric responses to good and bad news within a stochastic volatility framework. It is shown that the asymmetry leads to a greater average optimal hedge ratio. Moreover, the ratio increases with increasing degree of asymmetry. On the other hand, asymmetry has no impact on the hedging performance. The result is consistent with the empirical finding of Brooks, Henry, and Persand (2002) where GARCH models are employed. © 2005 Wiley Periodicals, Inc. Jrl Fut Mark 25:607–612, 2005

Suggested Citation

  • Donald Lien, 2005. "A note on asymmetric stochastic volatility and futures hedging," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 25(6), pages 607-612, June.
    • Handle: RePEc:wly:jfutmk:v:25:y:2005:i:6:p:607-612
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    Cited by:

    1. Ender Su & John Bilson, 2011. "Trading asymmetric trend and volatility by leverage trend GARCH in Taiwan stock index," Applied Economics, Taylor & Francis Journals, vol. 43(26), pages 3891-3905.
    2. Mao, Xiuping & Ruiz, Esther & Veiga, Helena, 2017. "Threshold stochastic volatility: Properties and forecasting," International Journal of Forecasting, Elsevier, vol. 33(4), pages 1105-1123.
    3. You‐How Go & Jia‐Jun Teo & Kam Fong Chan, 2023. "The effectiveness of crude oil futures hedging during infectious disease outbreaks in the 21st century," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 43(11), pages 1559-1575, November.

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