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Hedging crude oil using refined product: A regime switching asymmetric DCC approach

Zhiyuan Pan, Yudong Wang and Li Yang ()

Energy Economics, 2014, vol. 46, issue C, 472-484

Abstract: In this paper, we explore the strategy on hedging crude oil using refined product. We develop a regime switching asymmetric DCC (RS-ADCC) model by taking into account both of regime switching and asymmetry in correlations. Our out-of-sample findings indicate that RS-ADCC displays greater hedging effectiveness than some conventional multivariate GARCH. Heating oil can better hedge crude oil than gasoline.

Keywords: Crude oil; Regime switching; Asymmetry; Hedging (search for similar items in EconPapers)
JEL-codes: C22 C32 G17 G32 (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1016/j.eneco.2014.05.014

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Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant

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