OPTIMAL HEDGE RATIOS IN THE PRESENCE OF COMMON JUMPS
Research output: Journal Publications and Reviews (RGC: 21, 22, 62) › 21_Publication in refereed journal › peer-review
Author(s)
Related Research Unit(s)
Detail(s)
| Original language | English |
|---|---|
| Pages (from-to) | 801-807 |
| Journal / Publication | Journal of Futures Markets |
| Volume | 30 |
| Issue number | 8 |
| Online published | 20 Aug 2009 |
| Publication status | Published - Aug 2010 |
Link(s)
Abstract
This study derives optimal hedge ratios with infrequent extreme news events modeled as common jumps in foreign currency spot and futures rates. A dynamic hedging strategy based on a bivariate GARCH model augmented with a common jump component is proposed to manage currency risk. We find significant common jump components in the British pound spot and futures rates. The out-of-sample hedging exercises show that optimal hedge ratios which incorporate information from common jump dynamics substantially reduce daily and weekly portfolio risk.
Research Area(s)
- FUTURES
Citation Format(s)
OPTIMAL HEDGE RATIOS IN THE PRESENCE OF COMMON JUMPS. / CHAN, Wing Hong.
In: Journal of Futures Markets, Vol. 30, No. 8, 08.2010, p. 801-807.Research output: Journal Publications and Reviews (RGC: 21, 22, 62) › 21_Publication in refereed journal › peer-review
