Optimal Hedge Ratio estimation: GARCH (1,1) approach, a new model
DOI:
https://doi.org/10.29105/rinn3.6-5Keywords:
GARCH (1, 1), hedge Ratio estimationAbstract
An estimation of the Optimal Hedge Ratio on future markets is developed. The methodology incorporates forecasting the volatility and correlation of the spot and future prices using a GARCH (1,1) model, and under these estimations compute the optimal hedge ratio. This document shows a clear example of the methodology, using gold futures to hedge the risk exposure.
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References
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