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st: optimal hedge variance ratio
I am trying to finding out what could be an optimal hedge variance
ratio between spot and futures markets, between whose the degree of
correlation is highly varying.
For some reasons the hedge time period cannot extend for more than 1
month. So just to get an hint, I have calculated monthly correlation
coefficients which are highly varying. I am copying the frequency
distribution of monthly correlation coefficient values
(karl-pearsons') to indicating the degree of volatility.
-0.7 0 0.00%
-0.5 2 3.08%
-0.3 3 4.62%
0 7 10.77%
0.3 7 10.77%
0.5 6 9.23%
0.7 16 24.62%
0.9 15 23.08%
1 9 13.85%
Can someone throw light on which model to use and how to approach for
desiging a hedge model (estimate hedge variance ratio) in such a
scenario. Help requested at the earliest.
thanks for the attention and best rgds
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