A0292
Title: Re-balancing hedge position with statistics of hedge ratios: Concepts and applications
Authors: Cy Sin - National Tsing Hua University (Taiwan) [presenting]
Abstract: In a recent article, it has been concluded that ``...... there is strong evidence that these models (advanced econometric models) do not improve hedge efficiency significantly, if at all". As a matter of fact, dynamic hedging attempts to strike a balance between hedging effectiveness and transaction costs. Using the Garch asymptotic theories, we derive the asymptotic properties of the hedge ratio. As a result, we construct a natural and simple statistic of re-balancing, namely, the (asymptotic) standard deviation of the hedge ratio. We apply our method to a number of paired variables, such as WTI Crude Oil Futures and Spot Price. Empirical results are compared with those obtained previously.
