A Dynamic Minimum Variance Hedge

Sergio Lence, Kevin Kimle and Marvin L. Hayenga

Staff General Research Papers Archive from Iowa State University, Department of Economics

Abstract: The study presents an operational dynamic minimum variance hedge ratio (DMV) that allows for updates of both cash and futures positions. It is shown that DMV is more general than other operational models in the hedging literature, including the traditional static minimum-variance hedge ratio (SMV). Estimation of DMV is illustrated with a corn storage problem. The example reveals relatively noticeable differences among the magnitudes of DMV and alternative operational hedge ratios. However, gains in hedging effectiveness from using DMV instead of the simpler SMV are negligible.

Date: 1993-11-01
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Citations: View citations in EconPapers (8)

Published in American Journal of Agricultural Economics, November 1993, vol. 75 no. 4, pp. 1063-1071

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Journal Article: A Dynamic Minimum Variance Hedge (1993)
Working Paper: A Dynamic Minimum Variance Hedge (1992)
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Persistent link: https://EconPapers.repec.org/RePEc:isu:genres:10833

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