Pricing and Hedging Copper Futures on the London Metal Exchange
The IUP Journal of Applied Finance, Vol. 18, No. 1, January 2012, pp. 68-98
Posted: 13 Sep 2012
Date Written: January 13, 2012
The purpose of this paper is to examine the behavior of copper spot prices in London Metal Exchange. Besides, we examine the relation between hedging effectiveness and the maturity of the contract. This research provides an empirical comparison of different econometric techniques in the context of hedging the market risk of copper traded on the London Metal Exchange. It is found that the VAR-MGARCH model estimates of time-varying hedge ratio provide highest variance reduction.
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