Comparative analysis of risk measures for optimal hedge ratio determination

IF 7.4 2区经济学 Q1 BUSINESS, FINANCE

Finance Research Letters Pub Date : 2025-01-21 DOI:10.1016/j.frl.2025.106795

Fernanda Maria Müller , Leonardo Teixeira Spindler , Marcelo Brutti Righi

引用次数: 0

Abstract

We present a comparative study of loss and loss-deviation measures for optimal hedge ratio estimation in a minimum-loss and loss-deviation framework. The study encompasses five equity market indices and their futures contracts, covering developed and emerging markets from 2006 to 2024. The results show that the Expected Loss Deviation (ELD) measure leads to an average 94.5% and 82% reduction of variance and Value at Risk (VaR), respectively, thus outperforming other traditional measures, such as Expected Shortfall (ES) and Expectile Value at Risk (EVaR). Risk and loss-deviation measures with significance-level parameters showed increased effectiveness with higher significance levels. This research contributes to the literature by systematically comparing risk measures and highlighting the practical advantages of using loss-deviation measures in optimizing hedging strategies.

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来源期刊

Finance Research Letters BUSINESS, FINANCE-

CiteScore

11.10

自引率

14.40%

发文量

863

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