Dynamic hedging with futures: A copula-based GARCH model

Chih Chiang Hsu, Chih Ping Tseng, Yaw Huei Wang

Research output: Contribution to journalArticlepeer-review

82 Scopus citations


In a number of earlier studies it has been demonstrated that the traditional regression-based static approach is inappropriate for hedging with futures, with the result that a variety of alternative dynamic hedging strategies have emerged. In this study the authors propose a class of new copula-based GARCH models for the estimation of the optimal hedge ratio and compare their effectiveness with that of other hedging models, including the conventional static, the constant conditional correlation (CCC) GARCH, and the dynamic conditional correlation (DCC) GARCH models. With regard to the reduction of variance in the returns of hedged portfolios, the empirical results show that in both the in-sample and out-of-sample tests, with full flexibility in the distribution specifications, the copula-based GARCH models perform more effectively than other dynamic hedging models.

Original languageEnglish
Pages (from-to)1095-1116
Number of pages22
JournalJournal of Futures Markets
Issue number11
StatePublished - Nov 2008


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