Application of futures in calculating optimal hedge ratio in crude oil market: Comparison between static and dynamic approaches

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Aleali Simin; ABOUNOORI ABBASALI; EMAMVERDI GHODRATOLLAH; GHIASVAND ABOLFAZL

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Journal: JOURNAL OF ECONOMIC MODELING Year:2020 | Volume:5 | Issue:2 (17) Page(s): 65-93

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Title

Application of futures in calculating optimal hedge ratio in crude oil market: Comparison between static and dynamic approaches

Author(s)

Aleali Simin | ABOUNOORI ABBASALI | EMAMVERDI GHODRATOLLAH | GHIASVAND ABOLFAZL | Issue Writer Certificate

Keywords

Hedging RiskQ2

Future contractQ2

Minimum varianceQ1

CopulaQ1

Abstract

Futures are used as the most important risk hedge tools to reduce the risk of the crude oil market. The optimal Hedging Risk strategy is determined by calculating the optimal Hedging Risk ratio. It is important to determine the relationship between the time series of spot prices and futures in calculating the optimal Hedging Risk ratio. Therefore, in this paper, the OLS, ECM, DCC GARCH and GARCH models based on Copula are used to calculate and evaluate the optimal hedge ratio of spot market Hedging Risk to the futures market over the period 2018-2013. The results show that the DCC-GARCH model has the highest optimal Hedging Risk ratio at 0. 805. Considering the percentage of variance reduction, it can be concluded that the dynamic strategies of DCC and Copula to models Static Hedging Risk is more efficient. Also, the time-varying, t-student, gamble, and normal capsules show better performance than the DCC model. Also, among the functions mentioned above, the Copula t student function has the best performance.

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APA: Copy

Aleali, Simin, ABOUNOORI, ABBASALI, EMAMVERDI, GHODRATOLLAH, & GHIASVAND, ABOLFAZL. (2020). Application of futures in calculating optimal hedge ratio in crude oil market: Comparison between static and dynamic approaches. JOURNAL OF ECONOMIC MODELING, 5(2 (17) ), 65-93. SID. https://sid.ir/paper/390007/en

Vancouver: Copy

Aleali Simin, ABOUNOORI ABBASALI, EMAMVERDI GHODRATOLLAH, GHIASVAND ABOLFAZL. Application of futures in calculating optimal hedge ratio in crude oil market: Comparison between static and dynamic approaches. JOURNAL OF ECONOMIC MODELING[Internet]. 2020;5(2 (17) ):65-93. Available from: https://sid.ir/paper/390007/en

IEEE: Copy

Simin Aleali, ABBASALI ABOUNOORI, GHODRATOLLAH EMAMVERDI, and ABOLFAZL GHIASVAND, “Application of futures in calculating optimal hedge ratio in crude oil market: Comparison between static and dynamic approaches,” JOURNAL OF ECONOMIC MODELING, vol. 5, no. 2 (17) , pp. 65–93, 2020, [Online]. Available: https://sid.ir/paper/390007/en

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