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Title :Hedging using futures
Creator :Sarantopoulou-Chiourea, Sylvia-Anna
Contributor :Tzavalis, Elias (Επιβλέπων καθηγητής)
Athens University of Economics and Business, Department of Economics (Degree granting institution)
Type :Text
Extent :96p.
Language :en
Abstract :In this thesis, we cope with hedging in general, different ways of doing hedging and in particular we focus on hedging using futures.At the beginning, we introduce derivative securities, what do we mean when we say derivatives, the different types of derivatives and how we can use them in order to do hedging against a risk. We briefly state three types of derivatives securities, forward contracts, future contracts and options.In the second chapter, we make an introduction to hedging. After explaining the main idea of hedging, we distinguish hedging strategies in two types, “hedge-and-forget-strategies” and “dynamic hedging strategies”. We then analyze the former type, presenting three subtypes of it, the fully hedged strategy, the no hedging at all and the half-hedged strategy.In the third chapter, we cope with hedging with duration. We first explain the idea behind duration, stating the Macaulay duration, the Modified Duration, the Euro-Duration and finally convexity. Secondly, we focus on hedging based on duration and we give emphasis to Duration- based hedge ratio, as well as portfolio immunization or duration matching.In the next two chapters, we present the Black-Scholes formula, the main assumptions of the model, the Greeks and their relation with hedging strategies, so as to be able to move to chapter six with Delta hedging, a very common strategy, based on the above tools. We present this strategy, giving an example and then analyzing how we can use this strategy in order to hedge against the risks. We use Delta hedging for a portfolio with options, as well as in the case of forward contracts. At the end of this chapter, we discuss hedging strategies using other Greeks, such as gamma and vega.In chapter seven, we introduce another strategy for hedging, based on minimum variance hedge ratio and we state the conditions in order to achieve perfect hedging.After having presented an overall background of hedging and hedging strategies, we now focus on hedging using futures, which is a really interesting and widely used strategy. First of all, we make a brief statement again of some general considerations, giving many examples, so as to remind some basic ideas and make them clear.We continue with the analysis of basis risk and an example of basis risk with different maturities and an example of basis risk with different assets. We then introduce hedge ratio and its mathematical analysis, which is used later in the empirical part. In addition, we make a distinction between static and dynamic hedging techniques.In the next part, we deal with a technique named “rolling the hedge”. Moreover, we state the differences between strip hedge and stack rolling hedge and the three options that a hedger has when the hedge in not perfect. At this point, we give an example of rollover basis, so as to make it completely clear to everyone.In the second part of the thesis, we make an empirical application of the hedging strategy using futures. We want to examine if hedging using futures is better compared to no hedging at all. Therefore, we construct two portfolios, one containing the FTSE20 of Greece and another with both the index and its corresponding future.Afterwards, we employ newest econometric techniques to estimate the dynamic hedge ratio, using both univariate and multivariate ARCH and GARCH models. We calculate the return of each portfolio and its variance and make a comparison between them. Finally, after having done many calculations, we conclude that the portfolio with hedging has a better performance than the portfolio which has only the index in terms of variance reduction.
Subject :Derivative securities
Black-Scholes model
Futures contracts
ARCH-GARCH Processes
Date :31-01-2009
Licence :

File: Sarantopoulou-Chiourea_2009.pdf

Type: application/pdf