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Regular version of the site

Book chapter

Hedging and Risk Aversion on Russian Stock Market: Strategies Based on MGARCH and MSV Models

P. 83-92.

The paper studies the problem of dynamic hedge ratio calculation for the portfolio consisted of two assets – futures and the underlying stock. We apply the utility based approach to account for the degree of risk aversion in the hedging strategy. Seventeen portfolios, consisted of Russian blue-chip stocks and futures, are estimated in the paper. In order to estimate the conditional covariances of hedged portfolio returns, such multivariate volatility models as GO-GARCH, copula-GARCH, asymmetric DCC and parsimonious stochastic volatility model are applied. The hedging efficiency is estimated on the out-of-sample period using the maximum attainable risk reduction, the financial result and the investor’s utility. It’s shown that for 60% of portfolios ADCC surpasses the other models in hedging. Including the degree of risk aversion in the investor’s utility function together with above-mentioned volatility models allows to reach hedging efficiency of 88%.

In book

Edited by: A. Althonayan, T. Belkina, V. Mkhitaryan et al. Vol. 2018. Aachen: CEUR-WS, 2017.