Minimum variance hedging with bivariate regime-switching model for WTI crude oil

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Title:	Minimum variance hedging with bivariate regime-switching model for WTI crude oil
Authors:	Hung, JC (Hung, Jui-Cheng) Wang, YH (Wang, Yi-Hsien) Chang, MC (Chang, Matthew C.) Shih, KH (Shih, Kuang-Hsun) Kao, HH (Kao, Hsiu-Hsueh)
Contributors:	Dept Banking & Finance
Keywords:	Four-regime bivariate Markov switching model TVC-GARCH In- and out-of-sample hedging performances SPA test
Date:	2011-05
Issue Date:	2013-01-18 15:28:06 (UTC+8)
Abstract:	This paper proposes a four-regime bivariate Markov regime-switching model to estimate the daily time-varying minimum variance hedge ratios for West Texas Intermediate (WTI) crude oil, and evaluates its in- and out-of-sample hedging performances with two-regime model, CC-GARCH, TVC-GARCH, and OLS models. Empirical results reveal that the four-regime Markov switching model outperforms the other models for both in- and out-of-sample hedging performance. Based on Hansen's SPA test (2005), the four-regime model significantly outperforms the other models for only in-sample hedging. (C) 2011 Elsevier Ltd. All rights reserved.
Relation:	ENERGY Volume: 36 Issue: 5 Pages: 3050-3057
Appears in Collections:	[Department of Banking & Finance ] periodical articles

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