A Copula‐Based Quantile Risk Measure Approach to Estimate the Optimal Hedge Ratio
Massimiliano Barbi () and
Journal of Futures Markets, 2014, vol. 34, issue 7, 658-675
We propose an innovative theoretical model to determine the optimal hedge ratio (OHR) with futures contracts as the minimizer of a quantile risk measure. This class of measures is very large and allows to recover the minimum‐VaR and the minimum‐expected shortfall hedge ratios as special cases. The copula representation of quantiles yields an accurate and flexible estimation of the dependence structure between the spot and the futures position. Employing data for the main UK and US indices, and EUR/USD and EUR/GBP exchange rates, we investigate the hedging effectiveness of our model compared to that of existing approaches. We document that our model improves upon the hedging performance of minimum‐VaR and minimum‐expected shortfall hedge ratios, provided that the copula shows an acceptable fit to the data. © 2013 Wiley Periodicals, Inc. Jrl Fut Mark 34:658–675, 2014
References: Add references at CitEc
Citations: View citations in EconPapers (5) Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:wly:jfutmk:v:34:y:2014:i:7:p:658-675
Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0270-7314
Access Statistics for this article
Journal of Futures Markets is currently edited by Robert I. Webb
More articles in Journal of Futures Markets from John Wiley & Sons, Ltd.
Bibliographic data for series maintained by Wiley Content Delivery ().