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| Title: | COMBINING TIME-VARYING AND DYNAMIC MULTI-PERIOD OPTIMAL HEDGING MODELS |
| Authors: | Haigh, Michael S.
Holt, Matthew T. |
| Authors (Email): | Haigh, Michael S. (mhaigh@arec.umd.edu)
Holt, Matthew T. (matt_holt@ncsu.edu) |
| Issue Date: | 2002 |
| Series/Report no.: | Working Paper WP 02-08 |
| Abstract: | This paper presents an effective way of combining two popular, yet distinct approaches used in the hedging literature dynamic programming (DP) and time-series (GARCH) econometrics. Theoretically consistent yet realistic and tractable models are developed for traders interested in hedging a portfolio. Results from a bootstrapping experiment used to construct confidence bands around the competing portfolios suggest that while DP-GARCH outperforms the GARCH approach they are statistically equivalent to the OLS approach when the markets are stable. Significant gains may be achieved by a trader, however, by adopting the DPGARCH model over the OLS approach when markets exhibit excessive volatility. |
| URI: | http://purl.umn.edu/28593 |
| Institution/Association: | University of Maryland>Department of Agricultural and Resource Economics>Working Papers |
| Total Pages: | 48 |
| Language: | English |
| Collections: | Working Papers
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