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

Ren-Raw Chen, Dean Leistikow and Andrew Wang

The North American Journal of Economics and Finance, 2020, vol. 54, issue C

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: MVHR; Cost-of-carry; Vasicek; Ex-ante-hedge-ratio (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:54:y:2020:i:c:s1062940818302687

DOI: 10.1016/j.najef.2019.02.002

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