An approach to deal with asymmetry in the optimal hedge ratio

Youssef El-Khatib; Abdulnasser Hatemi-J

An approach to deal with asymmetry in the optimal hedge ratio

Youssef El-Khatib, Abdulnasser Hatemi-J

Department of Mathematical Sciences

Research output: Chapter in Book/Report/Conference proceeding › Conference contribution

2 Citations (Scopus)

Abstract

The optimal hedge ratio (OHR) has important implications for investors in order to hedge against the price risk. Several different approaches have been suggested in the literature in order to estimate the OHR, among others, constant parameter and time-varying approaches. One pertinent issue in this regard that has not been investigated, to our best knowledge, is whether the OHR has an asymmetric character or not. This issue is addressed in the current paper by mathematically proving that the OHR is asymmetric. In addition, we provide a method to deal with this asymmetry in the estimation of the underlying OHR. This method is applied to the US equity market using weekly spot and future share prices during the period January 5, 2006 to September 29, 2009. We find empirical support for an asymmetric OHR.

Original language	English
Title of host publication	Proceedings of the World Congress on Engineering 2011, WCE 2011
Pages	377-380
Number of pages	4
Publication status	Published - 2011
Event	World Congress on Engineering 2011, WCE 2011 - London, United Kingdom Duration: Jul 6 2011 → Jul 8 2011

Publication series

Name	Proceedings of the World Congress on Engineering 2011, WCE 2011
Volume	1

Other

Other	World Congress on Engineering 2011, WCE 2011
Country/Territory	United Kingdom
City	London
Period	7/6/11 → 7/8/11

Keywords

Asymmetry
Futures
Optimal hedge ratio
US equity market

ASJC Scopus subject areas

General Computer Science
General Engineering
Applied Mathematics

Cite this

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title = "An approach to deal with asymmetry in the optimal hedge ratio",

abstract = "The optimal hedge ratio (OHR) has important implications for investors in order to hedge against the price risk. Several different approaches have been suggested in the literature in order to estimate the OHR, among others, constant parameter and time-varying approaches. One pertinent issue in this regard that has not been investigated, to our best knowledge, is whether the OHR has an asymmetric character or not. This issue is addressed in the current paper by mathematically proving that the OHR is asymmetric. In addition, we provide a method to deal with this asymmetry in the estimation of the underlying OHR. This method is applied to the US equity market using weekly spot and future share prices during the period January 5, 2006 to September 29, 2009. We find empirical support for an asymmetric OHR.",

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author = "Youssef El-Khatib and Abdulnasser Hatemi-J",

year = "2011",

language = "English",

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series = "Proceedings of the World Congress on Engineering 2011, WCE 2011",

pages = "377--380",

booktitle = "Proceedings of the World Congress on Engineering 2011, WCE 2011",

note = "World Congress on Engineering 2011, WCE 2011 ; Conference date: 06-07-2011 Through 08-07-2011",

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T1 - An approach to deal with asymmetry in the optimal hedge ratio

AU - El-Khatib, Youssef

AU - Hatemi-J, Abdulnasser

PY - 2011

Y1 - 2011

N2 - The optimal hedge ratio (OHR) has important implications for investors in order to hedge against the price risk. Several different approaches have been suggested in the literature in order to estimate the OHR, among others, constant parameter and time-varying approaches. One pertinent issue in this regard that has not been investigated, to our best knowledge, is whether the OHR has an asymmetric character or not. This issue is addressed in the current paper by mathematically proving that the OHR is asymmetric. In addition, we provide a method to deal with this asymmetry in the estimation of the underlying OHR. This method is applied to the US equity market using weekly spot and future share prices during the period January 5, 2006 to September 29, 2009. We find empirical support for an asymmetric OHR.

AB - The optimal hedge ratio (OHR) has important implications for investors in order to hedge against the price risk. Several different approaches have been suggested in the literature in order to estimate the OHR, among others, constant parameter and time-varying approaches. One pertinent issue in this regard that has not been investigated, to our best knowledge, is whether the OHR has an asymmetric character or not. This issue is addressed in the current paper by mathematically proving that the OHR is asymmetric. In addition, we provide a method to deal with this asymmetry in the estimation of the underlying OHR. This method is applied to the US equity market using weekly spot and future share prices during the period January 5, 2006 to September 29, 2009. We find empirical support for an asymmetric OHR.

KW - Asymmetry

KW - Futures

KW - Optimal hedge ratio

KW - US equity market

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M3 - Conference contribution

AN - SCOPUS:80755180954

SN - 9789881821065

T3 - Proceedings of the World Congress on Engineering 2011, WCE 2011

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BT - Proceedings of the World Congress on Engineering 2011, WCE 2011

T2 - World Congress on Engineering 2011, WCE 2011

Y2 - 6 July 2011 through 8 July 2011

ER -

An approach to deal with asymmetry in the optimal hedge ratio

Abstract

Publication series

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Keywords

ASJC Scopus subject areas

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