Questions tagged [optimal-hedge-ratio]
The optimal-hedge-ratio tag has no usage guidance.
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How to tail a hedge? (Question 3.26 from Hull, edition 10)
I am new to finance so I apologize if my question is really basic (which it probably is). If this is not the right "stackexchange" group for this, kindly refer me to the right one.
Let's say you own ...
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Bond Hedging: PCA and regression based hedge ratios
This is my first question and I would very much appreciate any help.
For a project I am trying to compare different hedging techniques for hedging a long portfolio of bonds.
I have a history of ...
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Calculating the Hedge Ratio
Suppose we have an index whose value is calculated by a weighted geometric mean. Now we want to recreate the index using its underlying components. How would we go about calculating the hedge ratios ...
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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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hedging correlated instruments
If two instruments have a significant negative correlation but the percent change in the price of the instrument moving in positive direction is always more by a fraction than the one moving in ...
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Units of measurement for Minimum Variance Hedge Ratio
The minimum variance hedge ratio is given by $h=p*\frac{\sigma_S}{\sigma_F}$.
I was wondering if you wanted to calculate the S.D yourself and the spot prices were in Dollars per barrel while futures ...
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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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Minimum Variance Hedge Ratio and Risk Capital Relation
So I understand that the minimum variance hedge ratio minimizes the second moment of the portfolios. My question is how is it related to the size of the risk capital (which is calculated as the Value ...
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Measuring Hedge Effectiveness
So I was trying to estimate the performance of a static hedge vs dynamic hedge in the electricity market and I came up with some weird findings. When I used the minimum variance hedge approach using ...
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Two questions regarding cross-hedge
A company has to hold an underlying asset for one year and it is looking to use Brent Crude futures to hedge against changes in the underlying asset's price.
Assuming there is no liquidity concerns ...
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How can I use PCA to determine spread ratios for multiple legs?
I would like to generalize Paul Teetor's A Better Hedge Ratio, which uses prcomp() to determine a ratio between two legs. I am hoping to extend this to multiple legs, but am having trouble finding ...
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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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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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Constructing a Beta Neutral Hedge in a Pairs Strategy
Looking for resources / explanation.
Creating a dollar neutral hedge is easy - stockprice-a/stockprice-b
How do I create a beta neutral hedge?
I find discussions but no explicit derivation ...
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Minimum variance hedge ratio price difference vs. log-returns
So from my understanding Hull (2012) f.e. shows that the optimal hedge ratio minimizes the variance of the returns. But what happens to the variance of the prices? Is the Minimum variance hedge ...
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