EconPapers    
Economics at your fingertips  
 

Optimal futures hedging for energy commodities: An application of the GAS model

Yingying Xu and Donald Lien

Journal of Futures Markets, 2020, vol. 40, issue 7, 1090-1108

Abstract: This paper applies generalized autoregressive score‐driven (GAS) models to futures hedging of crude oil and natural gas. For both commodities, the GAS framework captures the marginal distributions of spot and futures returns and corresponding dynamic copula correlations. We compare within‐sample and out‐of‐sample hedging effectiveness of GAS models against constant ordinary least square (OLS) strategy and time‐varying copula‐based GARCH models in terms of volatility reduction and Value at Risk reduction. We show that the constant OLS hedge ratio is not inherently inferior to the time‐varying alternatives. Nonetheless, GAS models tend to exhibit better hedging effectiveness than other strategies, particularly for natural gas.

Date: 2020
References: Add references at CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://doi.org/10.1002/fut.22118

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:wly:jfutmk:v:40:y:2020:i:7:p:1090-1108

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 ().

 
Page updated 2020-06-04
Handle: RePEc:wly:jfutmk:v:40:y:2020:i:7:p:1090-1108