Optimal Hedging with Margin Constraints and Default Aversion and its Application to Bitcoin Perpetual Futures
SSRN, ISSN: 1556-5068
2021
- 10Citations
- 3,424Usage
- 10Captures
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Example: if you select the 1-year option for an article published in 2019 and a metric category shows 90%, that means that the article or review is performing better than 90% of the other articles/reviews published in that journal in 2019. If you select the 3-year option for the same article published in 2019 and the metric category shows 90%, that means that the article or review is performing better than 90% of the other articles/reviews published in that journal in 2019, 2018 and 2017.
Citation Benchmarking is provided by Scopus and SciVal and is different from the metrics context provided by PlumX Metrics.
Article Description
We consider a futures hedging problem subject to a budget constraint that limits the ability of a hedger with default aversion to meet margin requirements. We derive a semi-closed form for an optimal hedging strategy with dual objectives — to minimize both the variance of the hedged portfolio and the probability of forced liquidations due to margin calls. An empirical analysis of bitcoin shows that the optimal strategy not only achieves superior hedge effectiveness, but also reduces the probability of forced liquidations to an acceptable level. We also compare how the hedger's default aversion impacts the performance of optimal hedging based on minute-level data across major bitcoin spot and perpetual futures markets.
Bibliographic Details
http://www.scopus.com/inward/record.url?partnerID=HzOxMe3b&scp=85110619446&origin=inward; http://dx.doi.org/10.2139/ssrn.3760048; https://www.ssrn.com/abstract=3760048; https://dx.doi.org/10.2139/ssrn.3760048; https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3760048; https://ssrn.com/abstract=3760048
Elsevier BV
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