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Improvement of Hedging Effect Based on the Average Hedging Ratio

In: Recent Developments in Data Science and Business Analytics

Author

Listed:
  • Yang Liu

    (College of Mathematics and Systems Science of Shandong University of Science and Technology)

  • Chuan-he Shen

    (Institute of Financial Engineering of Shandong Women’s University)

Abstract

This paper is aimed at exploring the improvement of hedging effect based on the theory of portfolio hedging, with multiple groups of CSI300 stock index futures and spot sample data as the analysis object. The minimum variance method is employed to estimate the optimal hedging ratio under the OLS and GARCH hedging models and calculate the average of the hedge ratios. By comparing the hedging effects of the constructed portfolio outside of samples based on different hedging ratios, the empirical analysis displays that the hedging effect of the average hedge ratio was superior to the hedging effect of the estimated hedge ratio of most individual historical samples. Therefore, the methodology supposed is deeply improved by considering the average value of the hedging ratio in order to optimize the optimal hedging ratio.

Suggested Citation

  • Yang Liu & Chuan-he Shen, 2018. "Improvement of Hedging Effect Based on the Average Hedging Ratio," Springer Proceedings in Business and Economics, in: Madjid Tavana & Srikanta Patnaik (ed.), Recent Developments in Data Science and Business Analytics, chapter 0, pages 273-284, Springer.
    • Handle: RePEc:spr:prbchp:978-3-319-72745-5_30
    DOI: 10.1007/978-3-319-72745-5_30
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