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Estimating the Optimal Commodity Futures Hedge Ratio:A Comparative Approach for the Gold Coin Market in Iran

Eslambolchi, Farshid | 2012

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  1. Type of Document: M.Sc. Thesis
  2. Language: Farsi
  3. Document No: 43136 (44)
  4. University: Sharif University of Technology
  5. Department: Management and Economics
  6. Advisor(s): Keshavarz Haddad, Gholamreza
  7. Abstract:
  8. The increasing trend of gold prices over the last years, also a remarkable inflation in the prices level of Iran, attracted Iran households’ financial resources to the market of this precious metal. Although there are a sensible risk in the value of this asset, gold coin futures contracts is considered as an effective risk management lever of financial investors. This research intends to estimate the optimal rate of futures over spot contracts in the gold coins market of Iran. To this end, we use spot and futures prices over the 2008 Dec through 2011 Dec, which all the time series are sourced from the Iran’s mercantile exchange website. Among the existing procedures of optimal hedge ratio calculations, the well-known minimum variance, generalized semi-variance and mean-extended Gini with various risk aversion parameters are applied to estimate the ratio. Also we employed several econometric methods including vector error correction, generalized autoregressive conditional heteroskedasticity, dynamic conditional correlation, asymmetric dynamic conditional correlation, BEKK and copula-GARCH models to model the mean and variance (and covariance) equations. Findings show that the hypothesis of joint normality of spot and futures returns is rejected but that of being martingale difference, which is sufficient condition for convergence of the optimal hedge ratios to minimum variance hedge ratios, are confirmed. Furthermore, the results show that the t-copula-aDCC-GARCH estimation method has got the best performance among the listed econometric procedures. Comparison of calculated optimal hedge ratios reveals that optimal hedge ratios which are obtained from normal-copula-aDCC-GARCH model are of the highest efficiency
  9. Keywords:
  10. Optical Hedge Ratio ; Gold Coin Futures Contract ; Semi-Variance ; Mean-Extended Gini ; Hedging Effectiveness

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