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Hedging iTraxx CDS Index Trading on an Intraday Basis: An Empirical Study

17 Pages Posted: 19 May 2013  

Cheng-Ran Du

Independent

Tim Brunne

Unicredit Bank AG

Date Written: April 22, 2013

Abstract

In this paper we examine the effectiveness of intraday hedging models for CDS index trading by means of more liquidly traded exchange-based future contracts. We consider the equity and BUND future as financial instruments to hedge standard 5Y iTraxx Euro Main and Crossover indices. Our analysis is based on a 4-month intraday time series for traded prices and quoted spreads, respectively. We find that a DAX future based intraday hedging strategy is the most efficient one. While the cross-asset hedging strategy reduces the intraday market risks of iTraxx Euro positions, the overall hedging efficiency is limited.

Keywords: intraday hedging, CDS index

JEL Classification: C31, G14

Suggested Citation

Du, Cheng-Ran and Brunne, Tim, Hedging iTraxx CDS Index Trading on an Intraday Basis: An Empirical Study (April 22, 2013). Available at SSRN: https://ssrn.com/abstract=2266510 or http://dx.doi.org/10.2139/ssrn.2266510

Chengran Du

Independent ( email )

No Address Available

Tim Brunne (Contact Author)

Unicredit Bank AG ( email )

Germany

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