Dynamic Hedging Portfolios-Application of Bivariate GARCH Models (original) (raw)

This paper investigates various hedging strategies using futures contracts, particularly focusing on the effectiveness of dynamic hedging methods based on bivariate GARCH models. The analysis is centered around the WIG20 stock index on the Warsaw Stock Exchange, and compares the performance of these models to traditional methods like OLS, revealing that no GARCH-based strategy outperforms OLS hedging. Additionally, the paper highlights the importance of the choice of estimation techniques for hedge ratios and their impact on reducing portfolio variance.