Hedging Downside Risk: Futures Versus Options

Hedging Downside Risk: Futures Versus Options

In this paper, we compare the hedging effectiveness of currency futures vs. currency options on the basis of the lower partial moments (LPMs). The LPM measures an individual hedger's downside risk, as opposed to the two-sided risk measure. Two estimation methods are applied to estimate the opti...

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Main Authors: TSE, Yiu Kuen, Lien, Donald
Format: text
Language:English
Published: Institutional Knowledge at Singapore Management University 2001
Subjects:
Economics
Online Access:https://ink.library.smu.edu.sg/soe_research/131
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spelling sg-smu-ink.soe_research-11302010-09-23T05:48:03Z Hedging Downside Risk: Futures Versus Options TSE, Yiu Kuen Lien, Donald In this paper, we compare the hedging effectiveness of currency futures vs. currency options on the basis of the lower partial moments (LPMs). The LPM measures an individual hedger's downside risk, as opposed to the two-sided risk measure. Two estimation methods are applied to estimate the optimal hedge ratio: the empirical distribution function method and the kernel density estimation method. We consider both methods for three currencies: the British pound, the Deutsche mark, and the Japanese yen. Currency futures are found to be a better hedging instrument than currency option. 2001-01-01T08:00:00Z text https://ink.library.smu.edu.sg/soe_research/131 info:doi/10.1016/S1059-0560(00)00074-5 Research Collection School Of Economics eng Institutional Knowledge at Singapore Management University Economics
institution Singapore Management University
building SMU Libraries
continent Asia
country Singapore
Singapore
content_provider SMU Libraries
collection InK@SMU
language English
topic Economics
spellingShingle Economics
TSE, Yiu Kuen
Lien, Donald
Hedging Downside Risk: Futures Versus Options
description In this paper, we compare the hedging effectiveness of currency futures vs. currency options on the basis of the lower partial moments (LPMs). The LPM measures an individual hedger's downside risk, as opposed to the two-sided risk measure. Two estimation methods are applied to estimate the optimal hedge ratio: the empirical distribution function method and the kernel density estimation method. We consider both methods for three currencies: the British pound, the Deutsche mark, and the Japanese yen. Currency futures are found to be a better hedging instrument than currency option.
format text
author TSE, Yiu Kuen
Lien, Donald
author_facet TSE, Yiu Kuen
Lien, Donald
author_sort TSE, Yiu Kuen
title Hedging Downside Risk: Futures Versus Options
title_short Hedging Downside Risk: Futures Versus Options
title_full Hedging Downside Risk: Futures Versus Options
title_fullStr Hedging Downside Risk: Futures Versus Options
title_full_unstemmed Hedging Downside Risk: Futures Versus Options
title_sort hedging downside risk: futures versus options
publisher Institutional Knowledge at Singapore Management University
publishDate 2001
url https://ink.library.smu.edu.sg/soe_research/131
_version_ 1770569028566253568

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