Abstract
This paper presents the use of three multivariate skew distributions (Generalized Hyperbolic distribution, multivariate skew normal distribution, and multivariate skew t distribution) for estimating minimum variance hedge ratio in a dynamic setting. Three criteria for measuring hedge effectiveness are employed: Hedging Instrument Effectiveness, Overall Hedge Effectiveness, and Relative-to-Optimal Hedge Ratio Effectiveness. The empirical analysis outcomes confirm that the three multivariate skew distributions are useful in deciding the optimal hedge ratio especially at the critical market moments because they consider both hedge and speculation. This advantage is held without the price of lower portfolio return. The traditional minimum variance hedge ratio can function as an effective hedge but only at most keep the portfolio variance level at its minimum.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.