BivariatePortfolio {ConnectednessApproach}

Kroner and Ng (1998) optimal bivariate portfolio weights

Description

This function calculates the optimal portfolio weights according to Kroner and Ng (1998)

Usage

BivariatePortfolio(
  x,
  H,
  method = c("cumsum", "cumprod"),
  long = TRUE,
  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

long

Allow only long portfolio position

statistics

Hedging effectiveness statistic

metric

Risk measure of Sharpe Ratio (StdDev, VaR, or CVaR)

digit

Number of decimal places

Value

Get bivariate portfolio weights

Author(s)

David Gabauer

References

Kroner, K. F., & Ng, V. K. (1998). Modeling asymmetric comovements of asset returns. The Review of Financial Studies, 11(4), 817-844.

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.

Examples

data("g2020")
fit = VAR(g2020, configuration=list(nlag=1))
bpw = BivariatePortfolio(g2020/100, fit$Q, method="cumsum", statistics="Fisher")
bpw$TABLE