Futures Optimal Hedge Ratio and Transaction Cost

• Main Authors: Hung, Wei-Kai, 洪煒凱
• Other Authors: Chou, Ray Yeutien
• Format: Others
• Language: en_US
• Published: 2019
• Online Access: http://ndltd.ncl.edu.tw/handle/tg948v

碩士 === 國立交通大學 === 經營管理研究所 === 107 === This paper uses three smoothing strategies, moving average (MA), exponential smoothing (EWMA), and Hodrick-Prescott Filter (HP-Filter), to curb the transaction cost while hedging with dynamic models, such as CCC and DCC-GARCH models. In order to look for the relationship between the hedging performance and the transaction cost, the smoothing parameters in each strategy are given different values. The sample set is built by the weekly data of fourteen underlying assets and its corresponding futures across six investment classes. With the evaluation of the one-period-ahead out-of-sample hedging performance with and without smoothing during the sample period from July 3, 1998 to June 26, 2015, the result shows that the hedging performance became worse in most of the futures market, no matter which smoothing methodologies are used. In addition, according to the comparison within three strategies of different smoothing parameters, the smoother the smoothed dynamic hedge ratio series are, the more cost can be cut down. Moreover, different smoothing strategies also show different patterns between portfolio variance and transaction cost in the same futures markets, while the moving average and the HP-Filter show a negative correlation, and the exponential smoothing demonstrates a positive one in most futures commodities.