A note on asymmetric stochastic volatility and futures hedging

Donald Lien

Journal of Futures Markets, 2005, vol. 25, issue 6, 607-612

Abstract: This note incorporates asymmetric responses to good and bad news within a stochastic volatility framework. It is shown that the asymmetry leads to a greater average optimal hedge ratio. Moreover, the ratio increases with increasing degree of asymmetry. On the other hand, asymmetry has no impact on the hedging performance. The result is consistent with the empirical finding of Brooks, Henry, and Persand (2002) where GARCH models are employed. © 2005 Wiley Periodicals, Inc. Jrl Fut Mark 25:607–612, 2005

Date: 2005
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