Dynamic Hedging with Futures that are subject to Price Limits
نویسنده
چکیده
The standard approaches to estimating minimum variance hedge ratios (MVHRs) are mis-specified when futures prices are subject to price limits. This paper proposes a bivariate tobit-FIGARCH model with maturity effects to estimate dynamic MVHRs using single and multiple period approaches. Simulations and an application to a commodity futures hedge support the proposed approach and highlight the importance of allowing for price limits when hedging. JEL classification: GO; C32; C34
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