Since the 1970s, futures hedge ratios have traditionally been calculated ex-post using an economically structure-less statistical analysis. This paper proposes an ex-ante, more efficient, less computationally demanding, general “carry cost rate” based hedge ratio. Though the proposed hedge...

The traditional futures hedge ratio (hT) is calculated ex post via economically structureless statistical analysis. Its lack of an economic foundation makes it inefficient and elevates its risk of error due to a regime shift. This paper proposes an ex ante, more efficient, carry cost rate (c)...

Based on a multivariate extension of the constrained locally polynomial estimator of Aït-Sahalia and Duarte (2003), we provide one of the first nonparametric estimates of probability densities of LIBOR rates under forward martingale measures and state-price densities (SPDs) implicit in interest...