Futures hedging under mark‐to‐market risk
Donald Lien and
Anlong Li
Journal of Futures Markets, 2003, vol. 23, issue 4, 389-398
Abstract:
This article introduces mark‐to‐market risk into the conventional futures hedging framework. It is shown that a hedger concerned with maximum daily loss will considerably reduce his futures position when the risk is taken into account. In case of a moderate hedge horizon, the hedger will hedge approximately 80% of his spot position. The effect of mark‐to‐market risk decreases very slowly as the hedge horizon increases. If the hedger is concerned with average daily loss, the effect is minimal for a moderate hedge horizon. © 2003 Wiley Periodicals, Inc. Jrl Fut Mark 23:389–398, 2003
Date: 2003
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Persistent link: https://EconPapers.repec.org/RePEc:wly:jfutmk:v:23:y:2003:i:4:p:389-398
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