The Role of the Bid-Ask Spread in a Dynamic - Time-Varying Optimal Hedging Model
| dc.creator | Haigh, Michael S. | |
| dc.date | 2017-04-01T14:00:24Z | |
| dc.date.accessioned | 2026-07-09T03:26:05Z | |
| dc.description | This paper presents a manageable and effective way of nesting two popular, yet distinct approaches to obtain optimal hedging ratios - time-series econometrics (GARCH) and dynamic programming (DP). The nested DP-GARCH model is then compared to a DP-GARCH model that accounts for variability in the bid-ask spread often unobserved (and hence ignored) in most studies. Results from an empirical application using data from an importantly traded commodity " sugar " suggest that a DP-GARCH model that incorporates the bid-ask spread still outperforms more traditional models. Moreover, the hedging ratios are far less volatile, and statistically different, than those recommended by the traditional GARCH methods that ignore the spread. | |
| dc.identifier | doi:10.22004/ag.econ.18967 | |
| dc.identifier | https://ageconsearch.umn.edu/record/18967/files/cp01ha02.pdf | |
| dc.identifier | http://ageconsearch.umn.edu/record/18967 | |
| dc.identifier.uri | http://hdl.handle.net/123456789/532497 | |
| dc.language | eng | |
| dc.publisher | ||
| dc.source | http://ageconsearch.umn.edu/record/18967 | |
| dc.title | The Role of the Bid-Ask Spread in a Dynamic - Time-Varying Optimal Hedging Model | |
| dc.type | Text |