Three alternative methods for estimating hedge ratios

Sheng-Syan Chen, Cheng Few Lee, Fu-Lai Lin, Keshab Shrestha

Research output: Chapter in Book/Report/Conference proceedingChapter (Book)Otherpeer-review

Abstract

This chapter first discusses four different theoretical models, which include minimum variance, mean-variance, expected utility, and value-at-risk method. Then we use S&P 500 data to show how three alternative estimation methods can be used to estimate hedge ratio. These three methods include OLS method, GARCH method, and cointegration and error correction method. We found that OLS method is not sufficient for estimating hedge ratio.
Original languageEnglish
Title of host publicationEncyclopedia of Finance
EditorsCheng-Few Lee, Alice C. Lee
Place of PublicationCham Switzerland
PublisherSpringer
Chapter74
Pages1703-1726
Number of pages24
Edition3rd
ISBN (Electronic)9783030912314
ISBN (Print)9783030912307
DOIs
Publication statusPublished - 2022

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