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A Dynamic Minimum Variance Hedge

  • Lence, Sergio H.
  • Kimle, Kevin
  • Hayenga, Marvin L.

The 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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Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 10833.

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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
Handle: RePEc:isu:genres:10833
Contact details of provider: Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
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