Minimum-variance hedging of Bitcoin inverse futures
Jun Deng, Huifeng Pan, Shuyu Zhang, Bin Zou
Abstract
We formulate an optimal hedging problem of Bitcoin inverse futures under the minimum-variance framework. We obtain the optimal hedging strategy in closed forms for both short and long hedges and compute hedging effectiveness under the optimal strategy. Our empirical analyses show that the optimal hedging strategy achieves superior effectiveness in reducing risk and outperforms the naïve hedge in all scenarios.
Topics & Concepts
Futures contractHedgeEconomicsEconometricsVariance (accounting)Minimum-variance unbiased estimatorInverseMathematical optimizationMathematical economicsMathematicsComputer scienceFinancial economicsStatisticsEcologyMean squared errorGeometryBiologyAccountingBlockchain Technology Applications and SecurityMarket Dynamics and VolatilityComplex Systems and Time Series Analysis