Research on dynamic behavior hedging of corn price risk based on the LA-DCC-GARCH model under COVID-19

Sijie Li, Wenjing Guo and Min Zhu
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Sijie Li: Institute of Food and Strategic Reserves, Nanjing University of Finance and Economics, Nanjing, Jiangsu 210023, P. R. China†School of Finance, Nanjing University of Finance and Economics, Nanjing, Jiangsu 210023, P. R. China
Wenjing Guo: ��School of Finance, Nanjing University of Finance and Economics, Nanjing, Jiangsu 210023, P. R. China
Min Zhu: ��School of Finance, Nanjing University of Finance and Economics, Nanjing, Jiangsu 210023, P. R. China

International Journal of Financial Engineering (IJFE), 2025, vol. 12, issue 01, 1-20

Abstract: The ravages of COVID-19 have had a huge impact on the global economy, and in the grain market, grain prices have fluctuated greatly due to the impact of factors such as rising circulation costs and sudden panicky demand, which has increased the business risks of sellers and deep-processing enterprises. To effectively reduce and avoid the risks brought by COVID-19, this paper takes utility maximization as the goal and helps grain enterprises manage grain price risks by constructing optimal dynamic behavioral hedging strategies. Therefore, this paper first measures the corn price risk during COVID-19, and then, fits the corn spot and futures yield fluctuations based on the DCC-GARCH model, which highlights the model’s advantages for portraying the corn spot and futures price fluctuations during COVID-19. Subsequently, the dynamically optimal hedging ratio is solved from the perspective of behavioral hedging by combining the loss aversion (LA) utility function. Finally, the LA-DCC-GARCH model is compared with the Minimum variance (MV)-DCC-GARCH model in terms of hedging performance, which highlights the conclusion that the behavioral hedging strategy significantly outperforms the traditional hedging strategy.

Keywords: COVID-19; corn spot & corn futures; LA-DCC-GARCH; hedging (search for similar items in EconPapers)
JEL-codes: E30 E44 G10 G14 G18 G19 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1142/S2424786324500038

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