Crude oil hedging strategy: new evidence from the data of the financial crisis
This article examines the performance of three multivariate conditional volatility models with respect to crude oil spot and futures returns: the Dynamic Conditional Correlation (DCC) model, Asymmetric Dynamic Conditional Correlation (A-DCC) model and Diagonal Baba-Engle-Kraft-Kroner (Diagonal BEKK) model. Moreover, the article proposes using the time-varying optimal hedge ratio (OHR) to build a hedging strategy in the market, taking advantage of these multivariate conditional volatility models. We employ daily spot and futures data from the West Texas Intermediate (WTI) oil market from 3 January 2007 to 30 December 2011. Variance of portfolios and hedging effectiveness index show that the performance in terms of reducing variance is good in order of A-DCC, DCC and Diagonal-BEKK.
Year of publication: |
2013
|
---|---|
Authors: | Toyoshima, Yuki ; Nakajima, Tadahiro ; Hamori, Shigeyuki |
Published in: |
Applied Financial Economics. - Taylor & Francis Journals, ISSN 0960-3107. - Vol. 23.2013, 12, p. 1033-1041
|
Publisher: |
Taylor & Francis Journals |
Saved in:
Online Resource
Saved in favorites
Similar items by person
-
Crude oil hedging strategy : new evidence from the data of the financial crisis
Toyoshima, Yuki, (2013)
-
Crude oil hedging strategy: new evidence from the data of the financial crisis
Toyoshima, Yuki, (2013)
-
Nakajima, Tadahiro, (2012)
- More ...