HedgeRatio function

Kroner and Sultan (1993) hedge ratios

This function calculates the hedge ratios of Kroner and Sultan (1993)

HedgeRatio(
  x,
  H,
  method = c("cumsum", "cumprod"),
  statistics = c("Fisher", "Bartlett", "Fligner-Killeen", "Levene", "Brown-Forsythe"),
  metric = "StdDev",
  digit = 2
)

Arguments

• x: zoo return matrix (in percentage)
• H: Residual variance-covariance, correlation or pairwise connectedness matrix
• method: Cumulative sum or cumulative product
• statistics: Hedging effectiveness statistic
• metric: Risk measure of Sharpe Ratio (StdDev, VaR, or CVaR)
• digit: Number of decimal places

Returns

Get hedge ratios

Examples

data("g2020")
fit = VAR(g2020, configuration=list(nlag=1))
hr = HedgeRatio(g2020/100, fit$Q)
hr$TABLE

References

Kroner, K. F., & Sultan, J. (1993). Time-varying distributions and dynamic hedging with foreign currency futures. Journal of Financial and Quantitative Analysis, 28(4), 535-551.

Ederington, L. H. (1979). The hedging performance of the new futures markets. The Journal of Finance, 34(1), 157-170.

Antonakakis, N., Cunado, J., Filis, G., Gabauer, D., & de Gracia, F. P. (2020). Oil and asset classes implied volatilities: Investment strategies and hedging effectiveness. Energy Economics, 91, 104762.

Author(s)

David Gabauer