Futures minimum variance hedge ratio determination: An ex-ante analysis

Ren Raw Chen; Dean Leistikow; Andrew Wang

doi:10.1016/j.najef.2019.02.002

Futures minimum variance hedge ratio determination: An ex-ante analysis

Ren Raw Chen^*, Dean Leistikow, Andrew Wang

^*Corresponding author for this work

Research output: Contribution to journal › Journal Article › peer-review

4 Scopus citations

Abstract

Traditionally, futures Minimum Variance Hedge Ratios (MVHRs) are determined ex post. In this paper, we derive 3 increasingly realistic ex ante MVHRs, based on the carry cost and the Vasicek model. The hedging performance of the most realistic ex ante MVHR determination method is compared to, and found to be superior to, that of the traditional MVHR for the S&P 500 index, gold, and the EUR/USD exchange rate.

Original language	English
Article number	100924
Journal	North American Journal of Economics and Finance
Volume	54
DOIs	https://doi.org/10.1016/j.najef.2019.02.002
State	Published - 11 2020
Externally published	Yes

Bibliographical note

Publisher Copyright:
© 2019 Elsevier Inc.

Keywords

Cost-of-carry
Ex-ante-hedge-ratio
MVHR
Vasicek

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10.1016/j.najef.2019.02.002

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title = "Futures minimum variance hedge ratio determination: An ex-ante analysis",

abstract = "Traditionally, futures Minimum Variance Hedge Ratios (MVHRs) are determined ex post. In this paper, we derive 3 increasingly realistic ex ante MVHRs, based on the carry cost and the Vasicek model. The hedging performance of the most realistic ex ante MVHR determination method is compared to, and found to be superior to, that of the traditional MVHR for the S&P 500 index, gold, and the EUR/USD exchange rate.",

keywords = "Cost-of-carry, Ex-ante-hedge-ratio, MVHR, Vasicek",

author = "Chen, {Ren Raw} and Dean Leistikow and Andrew Wang",

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year = "2020",

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volume = "54",

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AU - Leistikow, Dean

AU - Wang, Andrew

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N2 - Traditionally, futures Minimum Variance Hedge Ratios (MVHRs) are determined ex post. In this paper, we derive 3 increasingly realistic ex ante MVHRs, based on the carry cost and the Vasicek model. The hedging performance of the most realistic ex ante MVHR determination method is compared to, and found to be superior to, that of the traditional MVHR for the S&P 500 index, gold, and the EUR/USD exchange rate.

AB - Traditionally, futures Minimum Variance Hedge Ratios (MVHRs) are determined ex post. In this paper, we derive 3 increasingly realistic ex ante MVHRs, based on the carry cost and the Vasicek model. The hedging performance of the most realistic ex ante MVHR determination method is compared to, and found to be superior to, that of the traditional MVHR for the S&P 500 index, gold, and the EUR/USD exchange rate.

KW - Cost-of-carry

KW - Ex-ante-hedge-ratio

KW - MVHR

KW - Vasicek

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U2 - 10.1016/j.najef.2019.02.002

DO - 10.1016/j.najef.2019.02.002

M3 - 文章

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SN - 1062-9408

VL - 54

JO - North American Journal of Economics and Finance

JF - North American Journal of Economics and Finance

M1 - 100924

ER -

Futures minimum variance hedge ratio determination: An ex-ante analysis

Abstract

Bibliographical note

Keywords

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