【英文摘要】
Hedging against investment risks is an essential element in portfolio management. This study evaluates the hedging performances by implementing two derivatives, Taiwan stock futures and Taiwan index options, as hedging instruments.
Spot portfolio are simulated using the market value weighted average of stocks that has options listed. Three econometric methods are used to estimate hedge ratio: i. Simple hedging, in which the hedge ratio is set at 1, ii. Ordinary least squares (OLS), and iii. Generalized AutoRegressive Conditional Heteroskedasticity (GARCH). For OLS and GARCH, we consider only the static regression model. Hedge effectiveness is then assessed by two indicators: a. Percent reduction in the variance of hedged versus unhedged portfolio, a widely used method proposed by Parkand Switzer（1995. b. Sharpe ratio -the return to variance ratio of a hedged portfolio.
Empirical results show that variance between different hedge ratio estimations is negligible when hedging with Taiwan stock future contract, while OLS outperforms all other metrics, presenting optimal hedge ratio when hedging with Taiwan index options. Evaluation of hedge effectiveness indicate that hedging with future contract results in better percent reduction in hedging variance, but hedging with options culminates in superior return to risk ratio. We conclude that hedging with Taiwan stock futures is preferable for the reduction of return variance, while the potency for risk mitigation hedging with Taiwan index options is reflected in its higher risk premium.
|