@article{Power:37609,
      recid = {37609},
      author = {Power, Gabriel J. and Vedenov, Dmitry V.},
      title = {The Shape of the Optimal Hedge Ratio: Modeling Joint  Spot-Futures Prices using an Empirical Copula-GARCH Model},
      address = {2008},
      number = {1314-2016-102653},
      series = {2008 NCCC-134 Conference on Applied Commodity Price  Analysis, Forecasting, and Market Risk Management},
      pages = {19},
      year = {2008},
      abstract = {Commodity cash and futures prices have been rising  steadily since 2006. As evidenced by the April 2008  Commodity Futures Trading Commission Agricultural Forum,  there is much concern among traditional futures and options  market participants that the usefulness of commodity  derivatives has been compromised. When basis risk is  particularly high, dynamic hedging methods may be helpful  despite their complexity and higher transaction costs. To  assess the potential benefits of dynamic hedging in  volatile times, this paper proposes a novel, empirical  copula-based method to estimate GARCH models and to compute  time-varying hedge ratios. This approach allows a  nonlinear, asymmetric dependence structure between cash and  futures prices. The paper addresses four principal  questions: (1) Does the empirical copula-GARCH method  overcome traditional limitations of dynamic hedging  methods? (2) How does the empirical copula- GARCH hedging  approach perform, for storable agricultural commodities,  compared with traditional GARCH and Minimum Variance  (static) hedging methods? (3) Is dynamic hedging more or  less effective in the post-2006 biofuels expansion time  period? (4) How sensitive is the ranking of methods to the  hedging effectiveness criterion used? Preliminary findings  suggest that the empirical copula-GARCH approach leads to  superior hedging effectiveness based on some, but not all,  risk criteria.},
      url = {http://ageconsearch.umn.edu/record/37609},
      doi = {https://doi.org/10.22004/ag.econ.37609},
}