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Textbook Estimators of Multiperiod Optimal Hedging Ratios: Methodological Aspects and Application to the European Wheat Market

Author

Listed:
  • Gianluca Stefani

    (Dipartimento di Scienza per l'Economia e l'Impresa)

  • Marco Tiberti

    (Dipartimento di Scienza per l'Economia e l'Impresa)

Abstract

This work deals with methodological and empirical issues related to multiperiod optimal hedging OLS estimators. We propose an analytical formula for the multiperiod minimum variance hedging ratio starting from the triangular representation of a cointegrated system DGP. Since estimating the hedge ratio matching the frequency of data with the hedging horizon leads to a sample size reduction problem, we carry out a Monte Carlo study to investigate the pattern and hedging efficiency of OLS hedging ratio based on overlapping vs non-overlapping observations exploring a range of hedging horizons and sample sizes. Finally, we applied our approach to real data for a cross hedging related to soft wheat.

Suggested Citation

  • Gianluca Stefani & Marco Tiberti, 2013. "Textbook Estimators of Multiperiod Optimal Hedging Ratios: Methodological Aspects and Application to the European Wheat Market," Working Papers - Economics wp2013_29.rdf, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.
    • Handle: RePEc:frz:wpaper:wp2013_29.rdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Future prices; Hedging; Monte Carlo; Soft wheat;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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