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ACCOUNTING RESEARCH JOURNAL VOLUME 18 NO 1 (2005)

A Critique of Minimum Variance Hedging


Jonathan Dark
Department of Econometrics and Business Statistics
Monash University

Abstract Section 2 will outline the conventional


This paper provides a critique of minimum approach to hedge ratio determination and
variance hedging using futures. The paper illustrate the use of the more sophisticated
develops the conventional minimum variance estimation procedures. Section 3 will discuss
hedge ratio (MVHR) and discusses its the limited improvements obtained when
estimation. A review of the wide variety of employing the more sophisticated estimation
alternative methods used to construct MVHRs methods. The section will then discuss the
is then performed. These methods highlight alternative approaches used to determine hedge
many of the potential limitations in the ratios. These alternative approaches will
conventional framework. The paper argues that highlight many of the possible shortcomings in
the literature should focus more on the the conventional approach. Section 4 will
assumptions underlying the conventional examine the conditions required for the MVHR
MVHR, rather than improving the techniques to be utility maximizing. This will include a
used to estimate the conventional MVHR. brief discussion of the limitations in the mean
variance framework and the use of alternative
1. Introduction measures of risk. Section 5 will conclude.
The importance of managing risk has seen a 2. Conventional Hedge Ratio
voluminous futures hedging literature develop
over the last half a century. Much of the determination
hedging literature seeks to minimise the risk Hedging combines spot and futures positions to
exposure associated with a given position in the form a hedged portfolio. Define X s and X f
spot market. The literature commonly estimates as the spot and futures positions, time t as the
minimum variance hedge ratios (MVHRs) commencement date of the hedge, time t+r as
based on the early work of Ederington (1979). the reversal date of the hedge, St and Ft as
This approach will be referred to as the the spot and futures prices at time t, and
conventional MVHR. Bt = Ft St as the basis at time t. Following
Much of the recent literature that employs Ederington (1979) the hedge ratio, is
the conventional approach, focuses on defined as
improving the methods used to estimate X f
minimum variance hedge ratios. These = . (1)
methods typically allow for cointegration Xs
between the spot and futures markets, Given that X s and X f are usually of
conditional information and conditional opposite signs, is usually positive. To
heteroscedasticity. This paper argues that the simplify notation it is assumed that the hedger
literature should focus more on the assumptions has a fixed spot position of one unit, that is
underlying the conventional MVHR, rather X s =1.
than improving the techniques used to estimate Assuming that the spot and futures prices
the MVHR. are equal on expiration of the futures contract,
risk can be eliminated completely by taking a
fully offsetting futures position at time t
This paper is based on Chapter 5 of my Phd dissertation. ( =1) and reversing the position on the
Acknowledgment: The author thanks Robert Faff for futures expiry date. Unless the reversal of the
encouragement and helpful comments. hedge coincides with the futures expiry date,

40
A Critique of Minimum Variance Hedging

the hedge is exposed to basis risk (defined as follow a martingale process where2
the variance of the basis). Basis risk means that Et ( Ft + r Ft ) = 0 . (2)
the gain or loss on reversal of the hedge is
uncertain. It is this type of hedge which has Partial hedging ( 0 < < 1 ) allows the
received the most attention in the literature, and hedger to determine the optimal tradeoff
is the focus of this paper. between spot price risk and basis risk.
The hedge is viewed as a two security
2.1 Nave hedging and Workings approach
portfolio consisting of spot and futures
The nave approach sees the primary
positions. It is assumed that the hedger has an
motivation for hedging as risk reduction and
expected mean variance utility function. This
sets =1. If the value of the change in the
preference function assumes either quadratic
spot equals the value of the change in the
preferences or normally distributed returns. It is
futures ( St + r St = Ft + r Ft ), there is no
assumed that the hedger has a given spot
basis risk and the hedgers wealth remains
position of one unit and seeks to maximise
unchanged. Alternatively, the hedgers wealth
expected profit adjusted for risk at time (t+r).
remains unchanged given that the gain or loss
The hedger therefore seeks to maximise the
on the hedge is equal to the change in the basis
following objective function ()
( Ft St ) ( Ft + r St + r ) which is equal
to zero. Under these circumstances, the spot Max ( ) = Et ( t + r ) 2
t +r
(3)
price risk has been eliminated completely and
where represents the risk aversion
parameter, Et ( t + r ) represents the expected
the hedger has locked in the spot price at
time t. If the spot and futures markets do not
profit from the hedge between time t and time
move together perfectly, the hedger is exposed
t+r
to basis risk, with the change in the basis
resulting in a change in wealth. Nave hedging Et ( t + r ) = Et ( St + r St ) Et ( Ft + r Ft ) (4)
therefore completely eliminates spot price risk
and t +r represents the variability in hedged
2
and replaces it with basis risk. Risk reduction
portfolio returns
only occurs if the variance of the basis is less
than the variance of the spot. 2 = s2 + 2 2f 2 sf
t +r
(5)
Working (1953a, 1953b, 1961) was critical
where s is the spot variance, f is the
2 2
of the nave approach, given its failure to
futures variance and sf is their covariance.
incorporate changes in the basis into the
Equations 4 and 5 reveal that different
hedging decision. Working assumed that
combinations of risk and return can be
hedges were motivated by the desire to profit
generated by varying the hedge ratio, 3. The
from favourable changes in the basis, with risk
hedge ratio is found by maximising Equation 3
reduction being incidental. Assuming a long
with respect to (Sephton, 1993)
spot position, if the basis was expected to fall,
the hedger would set = 1. If the basis was E (F F )
= sf2 t t + r 2 t . (6)
expected to rise, the hedger would not hedge at f 2 f
all, with = 0.1
Hedge ratio determination requires an
2.2 The conventional approach expected futures price Et ( Ft + r ) , plus a
Ederington (1979), Figlewski (1986) and measure of risk aversion, . The MVHR
Castelino (1992) overview the development of overcomes these issues by minimising the
the conventional approach which originated variability in the expected hedged return
from the work of Johnson (1960) and Stein
(1961). The conventional approach allows for
futures bias and partial hedging. Futures bias 2 If futures are biased the equality in Equation 2 does not
means that the futures are biased predictors of hold. Allowing for futures bias is important, given that it
may result in significant hedging losses. To illustrate,
the spot. If futures are unbiased the futures under a long spot/short futures hedge, if the futures are
downward biased, there will be a loss on reversal of the
futures position.
1 See Ederington (1979), Castelino (1992) and Brown 3 This may also be represented diagrammatically, see
(1985) for further discussion. Ederington (1979) and Cecchetti et al (1988).

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ACCOUNTING RESEARCH JOURNAL VOLUME 18 NO 1 (2005)

Et ( t + r ) .4 Minimising Equation 5 with Estimation methods commonly allow for


respect to yields conditional information, conditional
sf heteroscedasticity and cointegration between
= (7) the spot and futures markets.
2f Conditional information may be
where the MVHR is typically obtained via the accommodated through the re-specification of
estimate of in the following ordinary least Equation 8. Myers and Thompson (1989) and
squares (OLS) regression5 Viswanath (1993) perform a regression
between the spot and futures that includes
St = + Ft + t . (8)
regressors additional to those in Equation 8.
Therefore the risk averse investor uses a Myers and Thompson (1989) include lagged
combination of the MVHR (the risk component spot and futures variables, whilst Viswanath
of the hedge) and a futures bias term (the return (1993) includes the current level of the basis.
component) to determine the optimal hedge By arguing that it is the intercept in Equation 8
ratio. The hedge ratio in Equation 6 equals the that should be a function of conditional
MVHR if the futures follow a martingale information, these approaches do not address
process, where Et ( Ft + r Ft ) = 0 , or if the the finding by Bell and Krasker (1986), that the
hedger is extremely risk averse, where intercept and the slope are a function of
(Kahl, 1983; Sephton, 1993). conditional information. The approaches also
Therefore if futures are unbiased, the MVHR do not allow for conditional heteroscedasticity,
applies to all hedgers, irrespective of their imposing constant hedge ratios.6
degree of risk aversion. Another approach that allows for conditional
It is well known that unbiasedness is a joint information and conditional heteroscedasticity
hypothesis of market rationality and risk estimates time varying covariances. Kroner and
neutrality. Both hypotheses are controversial. Sultan (1993) assume that the hedger seeks to
The controversy applies to commodities minimise the variability in the hedged return
(Brenner and Kroner, 1995; Chowdhury, 1991; conditional on the information available. This
Beck, 1994; Graham-Higgs et al, 1999), results in the following MVHR
currencies (Bollerslev et al, 1992; Frankel and sf ,t +1
Froot, 1987; Ito, 1990) and interest rates t = (9)
(Hegde and MacDonald, 1986; Cole and 2f ,t +1
Reichenstein, 1994). See Kellard et al (1999) where the time subscript t, is used to denote the
for a review. Consequently conclusions use of conditional rather than unconditional
supporting unbiasedness must be treated with moments. As a consequence, the hedge ratio is
caution. Unless the hedger exhibits extreme dynamic, changing through time in response to
risk aversion, the use of the MVHR may not new information.
maximise the hedgers objective function. The bivariate GARCH family of processes
The following section discusses some of the (Bollerslev et al, 1992) allow for conditional
popular methods used to estimate MVHRs. information and time varying covariances and
These more sophisticated methods seek to are therefore a very popular way of estimating
address some of the limitations in the OLS dynamic MVHRs. MVHRs are therefore
approach discussed above (Equation 8). constructed by making one period ahead
2.3 The focus of recent research - forecasts of Equation 9 over the life of the
improving MVHR estimation hedge. See Baillie and Myers (1991), Myers
The literature now typically employs more (1991) and Sephton (1993).
sophisticated methods to estimate MVHRs. Ghosh (1993) finds that the MVHR
estimated via Equation 8 is outperformed by a
MVHR that allows for cointegration. Lien
4 See Castelino (1992) for an excellent reconciliation of (1996) provides a theoretical justification for
the MVHR and Workings approach. this result. The more recent literature therefore
5 Myers and Thompson (1989) and Castelino (1990a)
note that there is no consensus on whether Equation 8
should be in levels, first differences or returns. 6 See Lien and Luo (1994) for further discussion.

42
A Critique of Minimum Variance Hedging

estimates MVHRs via a bivariate error 3. Limitations in the conventional


correction model (ECM)
k k
approach
Rs ,t = a1 + b1 zt 1 + c1,i Rs ,t i + d1,i R f ,t i + s ,t (10) 3.1 The performance of the more
i =1 i =1
k k sophisticated estimation methods
R f ,t = a2 + b2 zt 1 + c2,i Rs ,t i + d 2,i R f ,t i + f ,t Table 1 documents the literature which
i =1 i =1
examines the performance of alternative
where zt 1 is the error correction term, Rs ,t methods of MVHR estimation using the
and R f ,t are the returns in the spot and futures conventional approaches. The Table reports the
markets respectively, k represents the number risk reduction, where the data set is divided into
of lags, and the MVHR is estimated as estimation and forecast periods, with the
cov ( s ,t f ,t ) (11)
forecast period being used to assess hedging
= effectiveness.
var ( f ,t ) The literature generally supports the
where ( )
cov s ,t f ,t and var f ,t are ( ) estimation of dynamic MVHRs using a
bivariate error correction GARCH model. The
either time invariant or time varying (as in
Equation 9). If one employs a time invariant earlier results (Cechetti et al, 1988; Baillie and
strategy, a bivariate ECM is estimated and Myers, 1991; Sephton, 1993) rejected the time
unconditional estimates of cov s ,t f ,t and ( ) invariance in MVHRs, finding that bivariate
( )
var f ,t are used to construct . Dynamic GARCH models achieved greater risk
reduction than the OLS MVHR (Equation 8).
MVHR estimation typically estimates time
( )
varying cov s ,t f ,t and var f ,t via a ( ) Subsequent results further illustrated the
benefits of allowing for cointegration and
bivariate error correction GARCH model.7 See
Kroner and Sultan (1993), Park and Switzer conditional heteroscedasticity (Kroner and
(1995), Koutmos and Pericli (1998) and Lien Sultan, 1993; Park and Switzer, 1995; Koutmos
and Tse (1999). and Pericli, 1998; Lien and Tse, 1999). These
The above has discussed the derivation and results also appear to be unaffected by the
estimation of the conventional MVHR and the inclusion of transaction costs (Kroner and
conditions when it will be utility maximizing. Sultan, 1993; Park and Switzer, 1995; Koutmos
Much of the recent research has accepted the and Pericli, 1998). Unfortunately the
assumptions of the conventional MVHR, incremental benefits provided by these more
focusing on improving the methods of sophisticated estimation methods are often
estimation. The rest of the paper argues that the quite small. Lien and Luo (1994) and Myers
literature should focus more on the assumptions (1991) show that even though the bivariate
underlying the conventional MVHR. Section GARCH models statistically outperform the
3.1 will demonstrate that the more other estimation approaches, this does not
sophisticated estimation approaches have necessarily result in superior risk reduction.
provided marginal improvements in the level of 3.2 Relaxing the assumptions of the
risk reduction. Section 3.2 will argue that the conventional MVHR
assumptions of the conventional MVHR may This section discusses the literature that relaxes
be inappropriate, given that they fail to allow some of the assumptions of the conventional
for multiple exposures, hedges over multiple MVHR, taking into account: i) multiple
periods, basis convergence, estimation risk and exposures; ii) multiple periods; iii) basis
the possibility of using options. convergence; iv) estimation risk; and v) the use
of options and futures. MVHRs estimated using
the conventional approach may therefore over
7 There is no consensus on what the findings of or understate the number of futures contracts
cointegration imply for futures unbiasedness. that are required to hedge a given exposure.
MacDonald and Taylor (1988), Wahab and Lashgari
(1993) and Lien (1996) argue that cointegration implies
market inefficiency. Krehbiel and Adkins (1993),
Chowdhury (1991) and Pizzi et al (1998) suggest that
cointegration implies market efficiency.

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ACCOUNTING RESEARCH JOURNAL VOLUME 18 NO 1 (2005)

Table 1
Summary of the literature investigating the performance of MVHRs
Reference Data MVHRs Dynamic Comments regarding risk
strategy reduction
Cecchetti 20 yr T-bond Biv-ARCH(3) Single Time invariant MVHR
et al (1988) Monthly, 1/78- period inappropriate.
12/83
Baillie and Commodities OLS, Single Time invariant MVHR
Myers Daily, 82-86 Biv-GARCH period inappropriate.
(1991) (periods vary) GARCH outperforms OLS.
Myers Wheat Weekly, OLS, Single MVHRs are time varying, however
(1991) 6/77-5/83 Biv-GARCH period the GARCH models performance
is only marginally better. Suggested
that once transaction costs are taken
into account, the OLS strategy is
probably the preferred strategy.
Sephton Commodities OLS, Single Time invariant MVHR
(1993) Daily, 5/88- Biv-GARCH period inappropriate.
5/89 GARCH outperforms OLS.
Kroner and Currencies vis- Nave,OLS, Single Biv-EC-GARCH provides best
Sultan a vis USD Biv-ECM, period performance (with and without
(1993) Weekly, 2/85- Biv-EC-GARCH transaction costs).
2/90
Lien and Currencies OLS, Multi- OLS and Biv ECM hedge
Luo (1994) vis--vis USD, Biv ECM, period outperform the Biv-EC-GARCH.
Weekly, 3/80- Biv-EC-GARCH
12/88
Park and S&P500, Nave, Single Biv-EC-GARCH hedge provides
Switzer Toronto 35 OLS, ECM, period superior performance (with and
(1995) Weekly, 6/88- Biv-EC-GARCH without transaction costs).
12/91
Koutmos Commercial OLS, Single Biv-EC-GARCH provides best
and Pericli paper with T- Biv-GARCH, period performance (with and without
(1998) bill futures, Biv-EC-GARCH transaction costs). Both
Weekly, cointegration and time varying
1/85- 3/96 moment estimation improves
hedging performance.
Lien and Nikkei 225 OLS, VAR, Single Including GARCH improves
Tse (1999) Daily, 1/89- ECM, period hedging performance. EC-GARCH
8/97 Biv-VAR/EC- is the dominant strategy. OLS
GARCH provides the worst performance.

OLS = ordinary least squares estimation via Equations 7 & 8. ECM = error correction model estimation,
Equations 7 & 10. Biv-GARCH/Biv-EC-GARCH = dynamic estimation of Equation 9 using bivariate
GARCH/bivariate error correction GARCH.

44
A Critique of Minimum Variance Hedging

3.2.1 Multiple exposures heteroscedasticity, and the approach cannot be


Each of the above approaches assume that the easily generalised to a hedge over a large
hedger only has a single asset in the spot number of periods. These approaches also fail
market which is exposed to price uncertainty. to allow for multiple exposures. A superior
This is unrealistic given that most hedgers have approach is developed by Lee (1999) who
multiple exposures. A portfolio manager for derives a multi-asset, multi-period dynamic
example, is likely to have domestic and MVHR which allows for conditional
overseas, bond, equity and currency exposures. information and conditional heteroscedasticity.
Figlewski (1986) defines the methods of hedge The approach captures the interperiod
ratio determination in Section 2 as micro dependencies over the life of the hedge, and
hedging strategies, given that each asset or reduces the volatility commonly associated
liability is considered in isolation. In contrast, with dynamic MVHR estimation. This is
macro hedging considers assets or liabilities in intentional given that a hedging strategy that
groups, hedging the net exposure. reflects short lived volatility fluctuations is
Gagnon et al (1998) derive a MVHR for a unstable, costly and ineffective when hedging
portfolio of currencies, where futures contracts over the long term (Lee, 1999).
are available for each currency. The MVHR for 3.2.3 Basis convergence
each exposure takes into account the All of the above methods fail to impose basis
covariance between the futures and the spot, as convergence, and therefore ignore information
well as all the other futures and spot positions that could be used when estimating hedge
in the portfolio. The approach however ratios. Castelino (1989, 1990a, 1990b, 1992)
assumes that there is no quantity risk, with the considers the impact of basis convergence on
number of units of currency fixed. This is MVHR determination. As highlighted earlier, a
unrealistic, given that a portfolio manager is hedge ratio of unity will be risky if the hedge is
typically exposed to currencies where the reversed prior to contract expiration (given
quantity (determined by the change in market basis risk). Castelino therefore develops a
values denominated in foreign currency) as MVHR that adjusts the hedge ratio away from
well as the price (determined by the change in unity as the hedge reversal date differs from the
exchange rates) is uncertain. contract expiration date.
Giaccotto et al (2001) address the Chen et al (1999) allows for convergence,
limitations in Gagnon et al (1998), by allowing conditional information and conditional
for multiple price and quantity exposures. The heteroscedasticity. Chen et al (1999) model the
hedge ratio is a function of the full covariance basis and spot as a bivariate GARCH process
structure of changes in spot prices, quantities with a maturity effect. By specifying the mean
and futures prices, and therefore takes into and variance of the basis as a function of time
account any of the natural hedges that may to maturity, the maturity of the contract
exist. It is demonstrated that failure to account influences the behaviour of the basis. The
for each of these covariances will lead to model is therefore able to impose the condition
systematic over or under hedging, supporting that at maturity, the basis and its conditional
the use of a macro hedging framework. variance are zero. Chen et al (1999) derive the
3.2.2 Multiple periods MVHR as a function of time to maturity.
The conventional dynamic MVHR (Equation Estimated MVHRs are inversely related to the
9) seeks to minimise the conditional variation time to maturity and therefore support the
in portfolio returns period by period. Howard insight of Castelino (1989, 1990a, 1990b,
and DAntonio (1991), Vukina and Anderson 1992).
(1993), Lien and Luo (1994) and Lee (1999) 3.2.4 Estimation risk
derive MVHRs that seek to minimise risk over Lence and Hayes (1994) are critical of the
the life of the hedge. Howard and DAntonio conventional MVHR given that it employs a
(1991) do not allow for conditional information parameter certainty equivalent (PCE) approach.
and Lien and Luo (1994) require sophisticated The PCE approach derives the MVHR under
estimation procedures. Vukina and Anderson the assumption that the probability density
(1993) do not allow for conditional function (PDF) and its parameters are known

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ACCOUNTING RESEARCH JOURNAL VOLUME 18 NO 1 (2005)

with certainty. This ignores estimation risk, internal cashflows used to finance an
which arises from less than perfect information investment project.
about the functional form of the PDF or its In summary there is a vast literature that
parameter values. Failure to recognise the seeks to address the limitations in the
estimation risk means that under the PCE conventional MVHR. Unfortunately an
approach, slight changes in data sets can result approach that simultaneously addresses all of
in large changes in the estimated MVHR. these limitations has not been forthcoming. The
Lence (1995) extends this further by arguing conventional MVHRs use of the mean variance
that the conventional MVHR ignores framework is one further possible limitation
estimation risk, commissions, margins and the and is the subject of the next section.
lumpiness of contracts. It also fails to allow for
simultaneous borrowing, lending or investing 4. Limitations in the mean variance
in other assets. The MVHR is determined via framework
the Lagrangian technique, where end of period The conventional approach employs a mean-
wealth is maximised subject to a number of variance framework assuming that
linear constraints. The magnitude of the hedge maximisation of the objective function
ratio is shown to be very sensitive to the (Equation 3) results in utility maximisation.
relaxation of the assumptions in the This however is not necessarily the case, given
conventional MVHR. that the MVHR equals the utility maximising
3.2.5 Hedging with futures and options hedge ratio only if the hedger has a quadratic
The above approaches assume that the only utility function or normally distributed profits
derivative available for hedging is a futures (Kahl, 1983).
contract. Lence et al (1994), Moschini and Arrow (1971) argues that quadratic utility is
Lapan (1995), Sakong et al (1993) and Froot et highly implausible given that it implies
al (1993), demonstrate that hedging a non- increasing absolute risk aversion. This suggests
linear payoff in the spot, requires the use of that as an individual becomes wealthier, they
options and futures. This is because a position will decrease the amount of risky assets held.
in futures and options can create an offsetting The normality requirement also appears
non linear payoff, in contrast to futures, that unlikely in most financial markets, with return
only provide offsetting linear payoffs. distributions exhibiting leptokurtosis and
Moschini and Lapan (1995) and Sakong et skewness. Nonetheless Levy and Markowitz
al (1993) show how a non-linear spot payoff (1979) argue that regardless of the utility
can be a result of the interaction between price function or the distribution of returns, the
and production yield uncertainty (a quantity maximisation of a mean-variance objective
risk). These results are based on a one period function may provide a reasonable
model, given the assumption that the firm is approximation of the true objective function.
only concerned with a single production cycle. The MVHR is therefore utility maximising
Lence et al (1994) allow for two production if: a) at least one of the conditions for the
cycles which is appropriate for firms that conventional approach to be utility maximising
exhibit forward looking behaviour. It is argued is met; and b) the futures are unbiased or the
that output price changes in one period will hedger is extremely risk averse. For example,
change the perceived relationship between next Giaccotto et al (2001) show that the MVHR
periods input and output prices. Lence et al equals the utility maximising hedge ratio if
(1994) show that under these circumstances utility is represented as a general von Neuman-
and non stochastic production, there will be a Morgenstern utility function (a more general
non linear payoff in the subsequent period that utility function than the quadratic utility
can be hedged with futures and options. Froot function), the variables are normally
et al (1993) also employ a two period approach distributed, and futures prices follow a
to examine the impact of hedging on optimal martingale process.
financing and investment decisions. A number Given that the conditions required for the
of situations are presented where a non linear conventional MVHR to be utility maximizing
hedging strategy is required to hedge the are quite restrictive, other approaches may

46
A Critique of Minimum Variance Hedging

provide superior outcomes (given that they are of the methods used to estimate MVHRs. The
utility maximising). Consequently the hedging paper then highlighted some of the weaknesses
outcomes using the conventional MVHR may in the approach. The conventional approach
be dominated stochastically. Stochastic does not allow for multiple exposures, multiple
dominance is based on the von Neumann- periods, basis convergence, estimation risk, or
Morgenstern utility functions and applies the use of futures and options. It was shown
selection rules that are based on pairwise that if a hedger is not extremely risk averse and
comparisons between distributions that require uses the conventional MVHR, this may not
knowledge of the complete distribution. This is maximise the hedgers objective function.
in contrast to the mean-variance approach Limitations in the mean variance framework
which only requires knowledge of the mean may also mean that the use of alternative risk
and variance. See Bawa (1975, 1978), Fishburn measures are required. Given the limited
(1977), Yitzhaki (1982), Shalit and Yitzhaki benefits from employing more sophisticated
(1984) for further details. estimation methods, the literature should
Given that the conventional approach may probably focus more of its attention on the
not be utility maximising, alternative measures assumptions underlying the MVHR, rather than
of risk have been used to derive hedge ratios. improving the estimation techniques.
Chen et al (2001) discuss the alternative risk
measures used in the hedging literature, namely References
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ACCOUNTING RESEARCH JOURNAL VOLUME 18 NO 1 (2005)

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