Futures Hedging , Quantile Derivatives , Mixture Distributions , Elliptical Distributions , Value at Risk , Conditional Value at Risk
Abstract:
In this paper, we analyze futures-based hedging strategies which minimize
tail risk measured by Value-at-Risk (VaR) and Conditional-Value-at-Risk (CVaR). In par-
ticular, we first deduce general characterizations of VaR- and CVaR-minimal hedging policies from results on quantile derivatives. We then derive first-order conditions for tail-risk-minimal hedging in mixture and regime-switching (RS) models. Using cross hedging examples, we show that CVaR-minimal hedging can noticeably deviate from
standard minimum-variance hedging if the return data exhibit nonelliptical features.
In our examples, we find an increase in hedging amounts if RS models identify a joint
crash scenario and we confirm a reduction in tail risk using empirical and EVT-based
risk estimators. These results imply that switching from minimum-variance to CVaR-
minimal hedging can cut losses during financial crises and reduce capital requirements
for institutional investors.
Dieser Eintrag ist Teil der Universitätsbibliographie.
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