Acta Univ. Agric. Silvic. Mendelianae Brun. 2018, 66(2), 423-429 | DOI: 10.11118/actaun201866020423

Comparison of the Impact of Econometric Models on Hedging Performance by Crude Oil and Natural Gas

Ludìk Benada
Department of Finance, Faculty of Economics and Administration, Masaryk University, Lipová 41a, 602 00 Brno, Czech Republic

The paper examines the performance of hedging spot prices in crude oil and natural gas. The subject of the research are spot prices of West Texas Intermediate and Henry Hub. The risk protection is provided by the application of futures contracts of underlying assets. In our analysis three econometric models (OLS, Copula, GARCH) and a naive portfolio are applied to obtain the optimal hedge ratio. Afterwards, the calculated weights for futures are verified for the ability to reduce the spot price risk over twelve months. The success of each model in risk reduction is measured over the test period by a conventional tool and across the models by proper metric. The results of the analysis confirm high level of risk reduction by crude oil across models. On the contrary, the results of hedging in natural gas significantly lag in comparison to crude oil. In addition, the analysis confirms a strong variability over the tested period and models.

Keywords: Risk, Hedging, Futures, Portfolio, Minimum variance
Grants and funding:

This research was supported by the project MUNI/A/1039/2016 Modelling volatility in financial markets and its application in the field of risk management and asset pricing.

Published: May 2, 2018  Show citation

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Benada, L. (2018). Comparison of the Impact of Econometric Models on Hedging Performance by Crude Oil and Natural Gas. Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, 66(2), 423-429. doi: 10.11118/actaun201866020423
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