A Note on Minimum Riskiness Hedge Ratio

11 Pages Posted: 17 Aug 2014 Last revised: 13 Jan 2017

See all articles by Sina Ehsani

Sina Ehsani

Northern Illinois University

Donald D. Lien

University of Texas at San Antonio - College of Business - Department of Economics

Date Written: August 11, 2014

Abstract

Regardless of the distributions of spot and futures returns, the hedge ratio determined by minimizing the portfolio’s Aumann and Serrano (2008) index of riskiness is always smaller than the hedge ratio determined by minimizing the portfolio’s variance. It is also demonstrated that the Foster and Hart (2009) riskiness hedge ratio does not exist.

Keywords: riskiness, economic index of riskiness, operational measure of riskiness, hedge ratio

JEL Classification: G11, G13, G32

Suggested Citation

Ehsani, Sina and Lien, Donald, A Note on Minimum Riskiness Hedge Ratio (August 11, 2014). Finance Research Letters, Vol. 15, 2015. Available at SSRN: https://ssrn.com/abstract=2481745 or http://dx.doi.org/10.2139/ssrn.2481745

Sina Ehsani (Contact Author)

Northern Illinois University ( email )

Chicago, IL 60115
United States

Donald Lien

University of Texas at San Antonio - College of Business - Department of Economics ( email )

6900 North Loop 1604 West
San Antonio, TX 78249
United States
210-458-4313 (Phone)
210-458-4308 (Fax)

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