I believe one form of the optimal hedge ratio is
h = cov(delta_S, delta_F)/var(delta_F)
which is the same as coefficient from regressing delta_S on delta_F.
Scott
----- Original Message -----
From: Krishna <[email protected]>
Date: Wednesday, August 17, 2005 10:28 am
Subject: st: optimal hedge variance ratio
> Hi All,
>
> I am trying to finding out what could be an optimal hedge variance
> ratio between spot and futures markets, between whose the degree of
> correlation is highly varying.
>
> For some reasons the hedge time period cannot extend for more than 1
> month. So just to get an hint, I have calculated monthly correlation
> coefficients which are highly varying. I am copying the frequency
> distribution of monthly correlation coefficient values
> (karl-pearsons') to indicating the degree of volatility.
>
> Corre
> range Frequency
> -0.7 0 0.00%
> -0.5 2 3.08%
> -0.3 3 4.62%
> 0 7 10.77%
> 0.3 7 10.77%
> 0.5 6 9.23%
> 0.7 16 24.62%
> 0.9 15 23.08%
> 1 9 13.85%
>
> Can someone throw light on which model to use and how to approach for
> desiging a hedge model (estimate hedge variance ratio) in such a
> scenario. Help requested at the earliest.
>
> thanks for the attention and best rgds
>
> snvk
>
> *
> * For searches and help try:
> * http://www.stata.com/support/faqs/res/findit.html
> * http://www.stata.com/support/statalist/faq
> * http://www.ats.ucla.edu/stat/stata/
>
*
* For searches and help try:
* http://www.stata.com/support/faqs/res/findit.html
* http://www.stata.com/support/statalist/faq
* http://www.ats.ucla.edu/stat/stata/
