Measuring the Hedging Effectiveness of Index Futures Contracts : Do Dynamic Models Outperform Static Models? A Regime-Switching Approach

This paper estimates linear and non-linear GARCH models to find optimal hedge ratios with futures contracts for some of the main European stock indexes. By introducing non-linearities through a regime-switching model, we can obtain more efficient hedge ratios and superior hedging performance in both in- and out-sample analysis compared with other methods (constant hedge ratios and linear GARCH). Moreover, the non-linear models also reflect different patterns followed by the dynamic relationship between the volatility of spot and futures returns during low and high volatility periods

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Year of publication:	2014
Authors:	Salvador, Enrique ; Aragó, Vicent
Publisher:	[S.l.] : SSRN
Subject:	Hedging \| Messung \| Measurement \| Schätzung \| Estimation \| ARCH-Modell \| ARCH model \| Indexderivat \| Index derivative \| Index-Futures \| Index futures \| Theorie \| Theory \| Europa \| Europe
Description of contents:	Abstract [papers.ssrn.com] ; Abstract [doi.org]