Measuring minimum variance hedging effectiveness: Traditional vs. sophisticated models

Sharma, Udayan; Karmakar, Madhusudan

doi:10.1016/j.irfa.2023.102621

Cited by 2 publications

(1 citation statement)

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“…The sophisticated models tend to stop performing well when a relatively small change is made in its specification, making the hedging effectiveness is sensitive to model specification (Sharma & Karmakar, 2023).…”

Section: Discussionmentioning

confidence: 99%

The effectiveness of crude oil futures hedging during infectious disease outbreaks in the 21st century

Teo

Chan

2023

Journal of Futures Markets

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This study analyzes the hedging effectiveness of crude oil futures during infectious disease outbreaks in the 21st century. The conditional volatility of crude oil markets experienced a greater shock during the coronavirus disease 2019 (COVID‐19) pandemic than during the severe acute respiratory syndrome and swine‐origin influenza A outbreaks. The sharp decline in the conditional correlation of crude oil markets following the onset of COVID‐19 increases the persistence of shocks to correlations, thereby diminishing the effectiveness of futures contracts as a hedging instrument.

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Section: Discussionmentioning

confidence: 99%

The effectiveness of crude oil futures hedging during infectious disease outbreaks in the 21st century

Teo

Chan

2023

Journal of Futures Markets

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Hedging Strategies in Carbon Emission Price Dynamics: Implications for Shipping Markets

Syriopoulos,

Roumpis,

Tsatsaronis

2023

Energies

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The European Union (EU) has agreed to gradually include shipping in the EU emissions trading scheme (EU ETS), which makes shipping companies vulnerable to carbon price fluctuations. The aim of this paper is to investigate the effectiveness of carbon and petroleum futures contracts in managing carbon and bunker risks. We examine the effectiveness of alternative hedging methods, including both static and dynamic approaches, to estimate optimal hedge ratios under single and composite cross-hedge settings. Our results show that carbon future contracts are important for hedging the carbon emission allowances price risk, and Brent oil futures are the most effective instrument for out-of-sample hedging of bunker prices. In addition, the hedging effectiveness indicates that conventional methods outperform the sophisticated models in terms of variance reduction. Our study offers new insights into how the carbon and bunker markets relate to a combination hedging in reducing the joint price risk, which can be used to promote risk management in the market.

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Measuring minimum variance hedging effectiveness: Traditional vs. sophisticated models

Cited by 2 publications

References 50 publications

The effectiveness of crude oil futures hedging during infectious disease outbreaks in the 21st century

The effectiveness of crude oil futures hedging during infectious disease outbreaks in the 21st century

Hedging Strategies in Carbon Emission Price Dynamics: Implications for Shipping Markets

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