One-Factor and Two-Factor Dynamic Hedging of Futures Contracts with Different Maturities for Emissions Allowances

Abstract:

Unexpected market information have a different speed change to market price of futures contracts with different maturities, and the paper estimates one-factor and two-factor dynamics hedge ratios and hedging effectiveness evaluation. One-factor and two-factor hedge ratios of futures contracts with different maturities for emissions allowances have time-varying trends. Compared with one-factor hedging, with an increase of span period, market participations can achieve a slight effect on risk reduction of portfolio revenues of futures contracts with different maturities by using two-factor hedge ratios, and especially two-factor hedging policy exhibits better hedging effectiveness for longer-term span period of futures contracts with different maturities for emissions allowances.

• Periodical: Applied Mechanics and Materials (Volumes 380-384)
• Pages: 4529-4536
• DOI: https://doi.org/10.4028/www.scientific.net/AMM.380-384.4529
• Online since: August 2013
• Authors: Chang Kai, Zhen Yu
• Keywords: Emissions Allowances, Hedge Ratios, Hedging Effectiveness, One-Factor, Two-Factor

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