Riskiness-minimizing spot-futures hedge ratio

Yi-Ting Chen, Keng-Yu Ho and Larry Y. Tzeng

Journal of Banking & Finance, 2014, vol. 40, issue C, 154-164

Abstract: In this paper, we propose a new spot-futures hedging method that determines the optimal hedge ratio by minimizing the riskiness of hedged portfolio returns, where the riskiness is measured by the index of Aumann and Serrano (2008). Unlike the risk measurements widely used in the literature, the riskiness index employed in our method satisfies monotonicity with respect to stochastic dominance. We also provide an empirical example to demonstrate how to estimate and test this optimal hedge ratio in equity data by the method-of-moments.

Keywords: Riskiness index; Optimal hedge ratio; Method-of-moments (search for similar items in EconPapers)
JEL-codes: C58 G11 G32 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:40:y:2014:i:c:p:154-164

DOI: 10.1016/j.jbankfin.2013.11.038

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