On the computation of hedging strategies in affine GARCH models

Maciej Augustyniak and Alexandru Badescu

Journal of Futures Markets, 2021, vol. 41, issue 5, 710-735

Abstract: This paper discusses the computation of hedging strategies under affine Gaussian GARCH dynamics. The risk‐minimization hedging strategy is derived in closed‐form and related to minimum variance delta hedging. Several numerical experiments are conducted to investigate the accuracy and properties of the proposed hedging formula, as well as the convergence to its continuous‐time counterpart based on the GARCH diffusion limit process. An empirical analysis with S&P 500 option data over 2001–2015 indicates that risk‐minimization hedging with the affine Gaussian GARCH model outperforms benchmark delta hedges. Our study also reveals that the variance‐dependent pricing kernel contributes to improving the hedging performance.

Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
https://doi.org/10.1002/fut.22187

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wly:jfutmk:v:41:y:2021:i:5:p:710-735

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0270-7314

Access Statistics for this article

Journal of Futures Markets is currently edited by Robert I. Webb

More articles in Journal of Futures Markets from John Wiley & Sons, Ltd.
Bibliographic data for series maintained by Wiley Content Delivery ().