A Dynamic Minimum Variance Hedge
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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|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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