HedgeRatio {ConnectednessApproach}

Kroner and Sultan (1993) hedge ratios

Description

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

Usage

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

Value

Get hedge ratios

Author(s)

David Gabauer

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.

Examples

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