Improving futures hedging performance using option information: Evidence from the S&P 500 index

Yujuan Bai, Zhiyuan Pan and Li Liu

Finance Research Letters, 2019, vol. 28, issue C, 112-117

Abstract: Option prices contain important information about risk preferences. This study proposes an option-based model to estimate the optimal dynamic hedging ratio. Using a sample of S&P 500 index, we find that the option-implied hedging ratio has the best performance both in-sample and out-of-sample due to its relative risk aversion. This finding will help risk managers reduce their hedging risk.

Keywords: Hedge ratio; Option-implied information; Volatility; Hedging performance (search for similar items in EconPapers)
JEL-codes: C5 G12 G13 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:28:y:2019:i:c:p:112-117

DOI: 10.1016/j.frl.2018.04.014

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