Time Variable Modeling of The Optimal Hedge Ratio Using Future Contracts: A Combined Approach of Pair-Capula Functions and Wavelet Decomposition

Document Type : Original Article

Authors

1 Ph.D. Student in Financial Engineering, Department of Management, Rasht Branch, Islamic Azad University, Rasht, Iran.

2 ** Associate Prof, Department of Management, University of Guilan, Rasht, Iran

3 Assistant Prof, Department of Management, Rasht Branch, Islamic Azad University, Rasht, Iran.

Abstract

The dependency structure of the futures and spot markets is crucial for achieving the optimal hedge ratio. Accordingly, the use of methods that consider the structural dependence on the decomposed frequencies in the modeling can achieve the optimal hedge ratio. The purpose of the this study is to model the optimal hedge ratio in futures and spot markets of gold coin with respect to structural dependence based on wavelet-Copula as time variables. For this purpose, the data of spot and futures markets of gold coins in Tehran Stock Exchange during March 25, 2014 to September 2, 2018 were used in daily time frame The results of time variability wavelet analysis model, GARCH-Copula model, and Combined Pair-Capula Functions and Wavelet Decomposition showed better performance of the models based on Combined Pair-Capula Functions and Wavelet Decomposition in the medium and long term.

Keywords

References

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