Hedging short‐term interest risk under time‐varying distributions

Gagnon, Louis; Lypny, Greg

doi:10.1002/fut.3990150703

Cited by 49 publications

(43 citation statements)

References 34 publications

(27 reference statements)

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“…Recently, Kroner and Ng (1998) Kroner and Ng (1998) introduce asymmetries following the Glosten et al (1993) approach. This is the most common method for introducing asymmetries in multivariate GARCH modelling (Gagnon & Lypny, 1995;Hendry & Sharma, 1999;Bekaert & Wu 2000).…”

Section: The Econometric Frameworkmentioning

confidence: 99%

Assessing the influence of spot price predictability on electricity futures hedging

Torró¹

2011

JOR

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A common feature of energy prices is that spot price changes are partially predictable due to weather and demand seasonalities. This paper follows the Ederington and Salas (2008) framework and considers the expected change in spot prices when minimum variance hedge ratios are computed. The poor effectiveness of hedging strategies obtained in previous studies on electricity was because the standard hedging approach underestimates the effectiveness of hedging. In the empirical study made in this paper, weekly spot price risk is hedged with weekly futures in the Nord Pool electricity market. In this case, the optimal selection of the futures contract may produce risk reductions whose values vary between 60% and 80% -depending on the hedging duration (one to three weeks) and the analysed sub-period (in-sample and out-of-sample sub-periods).

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Section: The Econometric Frameworkmentioning

confidence: 99%

Assessing the influence of spot price predictability on electricity futures hedging

Torró¹

2011

JOR

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“…Consequently the use of constant regression-based hedge ratios may lead to inferior hedging decisions. Several recent studies find that time-varying hedge ratios lead to higher risk reduction than constant hedge ratios for such diverse assets as commodities (Ballie and Myers, 1991), Treasury bonds (Cecchetti, Cumby, and Figlewski, 1988), Canadian banker's acceptances (Gagnon and Lypny, 1995), foreign currency (Kroner and Sultan, 1993) and stock index futures (Park and Switzer, 1995).…”

Section: Introductionmentioning

confidence: 99%

“…An Error Correction bivariate GARCH-type model (EC-GARCH) is used to estimate timevarying hedge ratios along the lines of Kroner and Sultan (1993) and Gagnon and Lypny (1995) among others. The EC-GARCH is estimated using weekly data on commercial paper with maturities of two, three, and six months.…”

Section: Introductionmentioning

confidence: 99%

“…Most of these models imply that higher short term rates are associated with higher volatility (see Chan, Karolyi, Longstaff, and Saunders, 1992). Recent studies have documented such asymmetries in the conditional volatility of short term interest rates (see for example Brenner, Harjes, andKroner, 1996 andGagnon andLypny, 1995). Because the price-yield relationship is one-to-one and onto, asymmetry in the conditional variance of yields implies reverse asymmetry in the conditional variance of prices.…”

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confidence: 97%

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Dynamic hedging of paper with T bill futures

Koutmos

Pericli

1998

J. Fut. Mark.

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“…This is the most common method for introducing asymmetries in multivariate GARCH modeling (Gagnon and Lypny, 1995;Hendry and Sharma, 1999;Bekaert & Wu 2000). In the empirical applications appearing in the following sections, we only report results for the asymmetric version of the BEKK model.…”

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confidence: 99%