Questions tagged [optimal-hedge-ratio]

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Translating Order books accounting for fees

I am trying to understand how fee structure plays into how I should best execute a trade. Say there are two exchanges with the following order book: Exchange A: Bid Qty | Bid Price | Ask Price | ...
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17 views

single period security market with two assets

Consider a single period security market with two assets. Assume the current prices are There are two states at time one and the payoff matrix is 1.Suppose the investor believes that each state has ...
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45 views

Calculate the conditional variance-covariance matrix to optimal hedge ratio bekk [duplicate]

I estimated an MGARCH-BEKK model (using the R package BEKK, i.e. Baba, Engle, Kraft and Kroner; see Engle and Kroner (1995)) on time series of spot and futures ...
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1answer
41 views

Units of measurement for Minimum Variance Hedge Ratio

The minimum variance hedge ratio is given by $h=p*\frac{\sigma_S}{\sigma_F}$. I was wondering if you wanted to calculate the S.D yourself and the spot prices were in Dollars per barrel while futures ...
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1answer
94 views

Hedge ratio: hedging a portfolio of global equities with futures

A bank decides to use $100 million of its capital to launch an investment strategy (seed money). The portfolio which is launched is made of global equities (say ~ 500 equities of different markets). ...
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0answers
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Pair trading: Hege ratio by price ratio or by regression on the stocks

So I feel things like this question do exist on the site however I failed to form a conclusion based on what was written, so I decided to formulate my query as exactly as possible and hopefully anyone ...
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1answer
2k views

How to tail a hedge? (Question 3.26 from Hull, edition 10)

I am new to finance so I apologize if my question is really basic (which it probably is). If this is not the right "stackexchange" group for this, kindly refer me to the right one. Let's say you own ...
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2answers
300 views

Two questions regarding cross-hedge

A company has to hold an underlying asset for one year and it is looking to use Brent Crude futures to hedge against changes in the underlying asset's price. Assuming there is no liquidity concerns ...
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2answers
808 views

hedging correlated instruments

If two instruments have a significant negative correlation but the percent change in the price of the instrument moving in positive direction is always more by a fraction than the one moving in ...
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0answers
194 views

Calculating the Hedge Ratio

Suppose we have an index whose value is calculated by a weighted geometric mean. Now we want to recreate the index using its underlying components. How would we go about calculating the hedge ratios ...
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1answer
566 views

How can I use PCA to determine spread ratios for multiple legs?

I would like to generalize Paul Teetor's A Better Hedge Ratio, which uses prcomp() to determine a ratio between two legs. I am hoping to extend this to multiple legs, but am having trouble finding ...