[R] optimal hedge variance ratio

From: Krishna <snvk4u_at_gmail.com>
Date: Thu 18 Aug 2005 - 00:49:13 EST


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



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