Work

Futures Cross-Hedging with a Stationary Basis

Year: 2012

Type: article

Abstract: When managing risk, frequently only imperfect hedging instruments are at hand. We show how to optimally cross-hedge risk when the spread between the hedging instrument and the risk is stationary . For linear risk positions we derive explicit formulas for the hedge error, and for nonlinear positions we show how to obtain numerically efficient estimates. Finally, we demonstrate that even in cases with no clear-cut decision concerning the stationarity of the spread, it is better to allow for mean reversion of the spread rather than to neglect it.

Source: Journal of Financial and Quantitative Analysis

DOI: 10.1017/s0022109012000555

Authors: Stefan Ankirchner, Georgi Dimitroff, Gregor Heyne, Christian Pigorsch

Institutions: University of Bonn, Humboldt-Universität zu Berlin, University of Oxford, Technical University of Munich

Language: English

Topic: Risk Management in Financial Firms

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

Open Access status: bronze

Funders: Deutsche Forschungsgemeinschaft, Hausdorff Center for Mathematics

OpenAlex ID: W2103070215