Riskiness-minimizing spot-futures hedge ratio
Journal
Journal of Banking and Finance
Journal Volume
40
Journal Issue
1
Pages
154-164
Date Issued
2014
Author(s)
Abstract
In this paper, we propose a new spot-futures hedging method that determines the optimal hedge ratio by minimizing the riskiness of hedged portfolio returns, where the riskiness is measured by the index of Aumann and Serrano (2008). Unlike the risk measurements widely used in the literature, the riskiness index employed in our method satisfies monotonicity with respect to stochastic dominance. We also provide an empirical example to demonstrate how to estimate and test this optimal hedge ratio in equity data by the method-of-moments. © 2013 Elsevier B.V.
Type
journal article