The asymmetric commodity inventory effect on the optimal hedge ratio

Jean-François Carpantier and Besik Samkharadze ()
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Besik Samkharadze: Université catholique de Louvain, CORE, B-1348 Louvain-la-Neuve

No 2012020, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: Hedging strategies for commodity prices largely rely on dynamic models to compute optimal hedge ratios. This paper illustrates the importance of considering the commodity inventory effect (effect by which the commodity price volatility increases more after a positive shock than after a negative shock of the same magnitude) in modelling the variance-covariance dynamics. We show by in-sample and out-of-sample forecasts that a commodity price index portfolio optimized by an asymmetric BEKK-GARCH model outperforms the symmetric BEKK, static (OLS) or naïve models. Robustness checks on a set of commodities and by an alternative mean-variance optimization framework confirm the relevance of taking into account the inventory effect in commodity hedging strategies.

Keywords: BEKK; commodity; asymmetries; hedging; inventory effect (search for similar items in EconPapers)
JEL-codes: C32 G13 Q02 (search for similar items in EconPapers)
Date: 2012-05-09
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: The Asymmetric Commodity Inventory Effect on the Optimal Hedge Ratio (2013)
Working Paper: The asymmetric commodity inventory effect on the optimal hedge ratio (2013)
Working Paper: The Asymmetric Commodity Inventory Effect on the Optimal Hedge Ratio (2013)
Working Paper: The asymmetric commodity inventory effect on the optimal hedge ratio (2012)
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