Estimation of the Optimal Futures Hedge.
Standard approaches to designing a futures hedge often suffer from two major problems. First, they focus only on minimizing risk, so no account is taken of the impact on expected return. Second , in estima ting the hedge ratio, no allowance is made for time variation in the distribution of cash and futures price changes. This paper describes a technique for estimating the optimal futures hedge that corrects these problems and illustrates its use in hedging Treasury bonds with T-bond futures. Copyright 1988 by MIT Press.
Year of publication: |
1988
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Authors: | Cecchetti, Stephen G ; Cumby, Robert E ; Figlewski, Stephen |
Published in: |
The Review of Economics and Statistics. - MIT Press. - Vol. 70.1988, 4, p. 623-30
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Publisher: |
MIT Press |
Saved in:
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