Comparison of the Impact of Econometric Models on Hedging Performance by Crude Oil and Natural Gas

Luděk Benada
Additional contact information
Luděk Benada: Department of Finance, Faculty of Economics and Administration, Masaryk University, Lipová 41a, 602 00 Brno, Czech Republic

Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, 2018, vol. 66, issue 2, 423-429

Abstract: The paper examines the performance of hedging spot prices in crude oil and natural gas. The subject of the research are spot prices of West Texas Intermediate and Henry Hub. The risk protection is provided by the application of futures contracts of underlying assets. In our analysis three econometric models (OLS, Copula, GARCH) and a naive portfolio are applied to obtain the optimal hedge ratio. Afterwards, the calculated weights for futures are verified for the ability to reduce the spot price risk over twelve months. The success of each model in risk reduction is measured over the test period by a conventional tool and across the models by proper metric. The results of the analysis confirm high level of risk reduction by crude oil across models. On the contrary, the results of hedging in natural gas significantly lag in comparison to crude oil. In addition, the analysis confirms a strong variability over the tested period and models.

Keywords: Risk; Hedging; Futures; Portfolio; Minimum variance (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://acta.mendelu.cz/doi/10.11118/actaun201866020423.html (text/html)
http://acta.mendelu.cz/doi/10.11118/actaun201866020423.pdf (application/pdf)
free of charge

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mup:actaun:actaun_2018066020423

DOI: 10.11118/actaun201866020423

Access Statistics for this article

Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis is currently edited by Markéta Havlásková

More articles in Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis from Mendel University Press
Bibliographic data for series maintained by Ivo Andrle ().