Questions tagged [optimal-hedge-ratio]
The optimal-hedge-ratio tag has no usage guidance.
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How does delta adjustment relate to skew stickiness ratio (SSR)?
The correct delta hedging of a derivative $V$ in a model where volatility $\sigma$ is a function of the underlier $S$ requires a stock holding of an amount
$$
\frac{dV}{dS}=\frac{\partial V}{\partial ...
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Minimum variance hedge ratio for currency hedging
The textbook formula for minimum variance hedge ratio (MVHR) is correl (Y,X) * (STDEV Y / STDEV X)
However, I would like to reconcile the textbook formula with the ...
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How to construct a delta-neutral portfolio containing stocks using correlations?
I’m aware of the mean-variance framework where we construct a portfolio such that we attempt to minimise the variance and maximise returns.
What if instead we’re in a scenario where the main goal is ...
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Calculate minimum variance hedge ratio for foreign-denominated asset hedged to domestic currency
The formula for minimum variance hedge ratio (MVHR) is conceptually the correlation multiplied by the ratios of volatilities.
correl (Y,X) * (STDEV Y / STDEV X)
...
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mathematical proof of the hedge ratio formula for bond futures
We know that the hedge ratio ϕ_F that we should use in order to to the duration-hedging through bond futures is:
$$ϕ_F= -(DV01_B / DV01_{CTD} )\cdot CF_{CTD}$$
Where $\textrm{DV01}_B$ is the dollar ...
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How to hedge 3 Month SOFR futures with 1 Month SOFR futures considering FOMC meeting
Has anyone considered trading SR3 vs SR1 SOFR futures? They both have the same underlying basis of daily SOFR, and how would one calculate a hedge ratio for the SR1 to trade along SR3?
Looking at the ...
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Hedge for some exotic options
It is well known that a european call option with strike price $C(K)=(S_T-k)^+$ coul be hedge using the Black-Scholes formula $BS(t,T,r,K,S_0)$. I would like to find a hedge (or sub-hedge) of the the ...
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Calculating the Minimum Variance Hedge Ratio [closed]
Taken from the book:
$\Delta{S}$ - Change in spot price, S, during a period of hedge.
$\Delta{F}$ - Change in futures price, F, during a period of hedge.
If we assume that the relationship between $\...
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Have more complex MVA-style models become obsolete?
Just reading a book about about portfolio optimisation. You hear left and right that MVA (Mean Variance Analysis of Markowitz) is out of date, creates suboptimal portfolios in practice and so on ...
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Simple beta hedging questions
This might sound really naive but I am really confused by this beta hedging idea.
So it seems the standard way to do it is to run a simple OLS on returns (say asset A and B only 2 assets in the ...
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Optimal Hedging Ratio using Copula Models
Let $r_{s, t}$ and $r_{f, t}$ be the return rates of the spot and futures of a commodity at time $t$. The hedging ratio based on variance minimization is calculated by finding the minimum of the ...
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Pairs trading using dynamic hedge ratio - how to tell if stationarity of spread is due to genuine cointegration or shifting of hedge ratio?
I'm very new to pairs trading, and am trying it out on a few dozen pairs.
It seems very natural to me to use a dynamic hedge ratio, as it seems likely that the ratio will move over time.
To accomplish ...
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Hedge 3 securities against 3 other securities
I have a portfolio of 6 securities, 3 long 3 short. I need to hedge them against each other so directional exposure = 0. How would I decide how to weight each security?
Is there a model to do this?
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Pairs trading/Cointegration confusion
I've been trying to wrap my head around cointegration. Currently I use the log returns of both stocks A and B, calculate the spread given by:
$S = log(A) - n*log(B)$ where $n$ is the Hedge Ratio ...
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Cross hedge: Which commodity to hedge when you have to hedge the jet fuel price but you have option between two commodities
If we have an option between two commodities to hedge jet fuel and the commodities have results as follows: minimum variance hedge ratio: 1.07 for commodity 1 and 2.53 for commodity 2
...
