Copula based Dynamic Hedging Strategy with Futures

Marcelo Righi () and Paulo Ceretta ()
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Paulo Ceretta: Federal University of Santa Maria

Economics Bulletin, 2012, vol. 32, issue 4, 3394-3400

Abstract: We present in this paper a dynamic hedging strategy for futures based exclusively on copula functions. We develop an algorithm based on numerical simulations from estimated copula and marginal probability function to obtain innovations. We illustrate our approach through an empirical example with Crude Oil and Gold. OLS static estimate showed itself improper and the proposed algorithm obtained very good results in spot/future variance reduction strategy.

Keywords: Dynamic Hedging Strategy; Future Markets; Copula Functions. (search for similar items in EconPapers)
JEL-codes: C0 G1 (search for similar items in EconPapers)
Date: 2012-12-19
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