Evaluation of realized multi-power variations in minimum variance hedging

Jui-Cheng Hung

Economic Modelling, 2015, vol. 51, issue C, 672-679

Abstract: This study investigated the hedging performance of realized multi-power variations under minimum variance strategy. The minimum variance hedge ratios are estimated by the realized DCC-GARCH model, and the risk and utility metrics are used to evaluate the performances of long and short hedge. The empirical results derived from the S&P 500 index demonstrated that the realized DCC-GARCH model with realized tri-power variation outperforms others in reducing risks, and generates largest economic benefits. While considering transaction costs, the superiority of the realized DCC-GARCH model with realized multi-power variations persists and produced less rebalancing costs than the realized DCC-GARCH model with realized variance.

Keywords: Realized multi-power variations; Minimum variance strategy; Realized DCC-GARCH model; Transaction costs (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:51:y:2015:i:c:p:672-679

DOI: 10.1016/j.econmod.2015.08.024

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