Three alternative methods for estimating hedge ratios

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

doi:10.1007/978-3-030-91231-4_74

Three alternative methods for estimating hedge ratios

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

Malaysia School of Business

Research output: Chapter in Book/Report/Conference proceeding › Chapter (Book) › Other › peer-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 language	English
Title of host publication	Encyclopedia of Finance
Editors	Cheng-Few Lee, Alice C. Lee
Place of Publication	Cham Switzerland
Publisher	Springer
Chapter	74
Pages	1703-1726
Number of pages	24
Edition	3rd
ISBN (Electronic)	9783030912314
ISBN (Print)	9783030912307
DOIs	https://doi.org/10.1007/978-3-030-91231-4_74
Publication status	Published - 2022

Access to Document

10.1007/978-3-030-91231-4_74

Cite this

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title = "Three alternative methods for estimating hedge ratios",

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AB - 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.

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