Dynamic Hedging: Time-varying optimal hedging, by return-based and range-based models under different dependent structures

• Main Authors: Chin-Kai Huang, 黃勁凱
• Other Authors: Yaw-Huei Wang
• Format: Others
• Language: en_US
• Published: 2009
• Online Access: http://ndltd.ncl.edu.tw/handle/53905514485873315660

碩士 === 國立臺灣大學 === 財務金融學研究所 === 97 === The world has experienced the global financial crisis and extremely volatile impact for the past year. Under this circumstance, the demands for risk management increase. For investor who possesses spot assets, it is natural to think of the corresponding futures contract for hedging purpose. Way to determine the optimal ratios for hedging purpose has become an important task. Dynamic hedging models generally result in better risk reduction compared to conventional method. However, the performances differ. This thesis attempts to make the comparison of the hedging performances cross two dimensions, return-based against range-based and DCC against Copula among both in-sample and out-of-sample results. According to the empirical results, while the range-based models in general demonstrate relatively better out-of-sample forecasting power under volatile environment, the return-based models can be considered to be more consistent cross markets and cross period of time. As for the copula-based model, the improvement over the DCC-based model is somehow insignificant. The numerical integral for generating covariance maybe blamed for this. The limitation on the computation accuracy could bring inaccuracy on hedging ratio and thus neutralize the possible benefit brought by using more realistic distributions.