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Dynamic Hedging with Foreign Currency Futures in the Presence of Jumps
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Wing Hong Chan
Veröffentlicht/Copyright:
27. Mai 2008
A dynamic hedging strategy based on a bivariate GARCH-jump model augmented with autoregressive jump intensity is proposed to manage currency risk. The GARCH-jump model, capable of capturing volatility clustering and leptokurtosis, provides a comprehensive description of the joint dynamics of the currency spot rate and the futures basis. We find significant common jump components in the currency spot rate and futures basis with jump sizes response asymmetrical to futures basis changes. Our out-of-sample hedging exercises show optimal hedge ratios incorporating information from common jump dynamics substantially reduce the portfolio risk of foreign currencies.
Published Online: 2008-5-27
©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston
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Artikel in diesem Heft
- Article
- A Video Interview with James Hamilton
- On the Robustness of Symmetry Tests for Stock Returns
- Multivariate Skewed Student's t Copula in the Analysis of Nonlinear and Asymmetric Dependence in the German Equity Market
- Dynamic Hedging with Foreign Currency Futures in the Presence of Jumps
- Option Valuation with Normal Mixture GARCH Models
- Unemployment and Economic Growth Cycles
Artikel in diesem Heft
- Article
- A Video Interview with James Hamilton
- On the Robustness of Symmetry Tests for Stock Returns
- Multivariate Skewed Student's t Copula in the Analysis of Nonlinear and Asymmetric Dependence in the German Equity Market
- Dynamic Hedging with Foreign Currency Futures in the Presence of Jumps
- Option Valuation with Normal Mixture GARCH Models
- Unemployment and Economic Growth Cycles
