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by EdisonCruise
March 25th, 2016, 7:43 am
Forum: Trading Forum
Topic: Does mean-variance allocation make sense in practice?
Replies: 6
Views: 2037

Does mean-variance allocation make sense in practice?

<t>There are about 10 ETF as assets. I am comparing the following strategiesA. mean-variance allocation strategy: 1. Forecast asset return; 2.Forecast asset covariance; 3 Minimize portfolio volatility ? portfolio return to calculate ETF weights. Result: portfolio return annual 5.5%, volatility 3.6%,...
by EdisonCruise
February 3rd, 2016, 12:25 am
Forum: Trading Forum
Topic: How to make order in practice when doing delta hedging?
Replies: 4
Views: 3127

How to make order in practice when doing delta hedging?

<t>Thank you DavidJN. I have implemented a simulation to test hedging strategies. However, I am not sure everything in the real trading environment can be easily simulated. Especially the market impact effect. Say I want to close a long position of 200 contracts, but on on the market there are only ...
by EdisonCruise
February 1st, 2016, 8:33 am
Forum: Trading Forum
Topic: How to make order in practice when doing delta hedging?
Replies: 4
Views: 3127

How to make order in practice when doing delta hedging?

<t>Dear all,I am doing a project that requires implementing delta hedging in practice. I have some question and don?t know how to begin:(1) If my plain vanilla option is deep in the money at its expiration. Then I must hold a large amount of the underlying future. If the option payoff at the future?...
by EdisonCruise
January 18th, 2016, 12:00 am
Forum: Technical Forum
Topic: Is there any industrial standard method to hedge option while need to roll future?
Replies: 4
Views: 2025

Is there any industrial standard method to hedge option while need to roll future?

The option is settled by cash, depending on the spot rate of dec future, say on its price of 15th , Sep.
by EdisonCruise
January 15th, 2016, 8:30 am
Forum: Technical Forum
Topic: Is there any industrial standard method to hedge option while need to roll future?
Replies: 4
Views: 2025

Is there any industrial standard method to hedge option while need to roll future?

<t>Thank you daveangel.I think that this can be cured by pricing with carrying cost theoretically. However, it seems that there is still an accounting issue. Say, we have sold a call option expiring on Sep and hedging it with June future. Suppose we hedged the option perfectly until May. On someday ...
by EdisonCruise
January 14th, 2016, 2:50 am
Forum: Technical Forum
Topic: Is there any industrial standard method to hedge option while need to roll future?
Replies: 4
Views: 2025

Is there any industrial standard method to hedge option while need to roll future?

<t>Suppose I sell a call option expiring on September on March. Active future contracts are on June and October. So I need to long June contract since March, then near the end of May, I need to switch to October contract. Usually at the end of May, October contract is 1-2% higher than the June contr...
by EdisonCruise
December 22nd, 2015, 9:21 am
Forum: Student Forum
Topic: Some confusion on John Hull?s method to calculate Minimum Variance Hedge Ratio
Replies: 10
Views: 2586

Some confusion on John Hull?s method to calculate Minimum Variance Hedge Ratio

Thank you daveangel.Most people are directly using that formula on Hull's book for a long time. It is difficult to make a correction now.
by EdisonCruise
December 22nd, 2015, 8:25 am
Forum: Student Forum
Topic: Some confusion on John Hull?s method to calculate Minimum Variance Hedge Ratio
Replies: 10
Views: 2586

Some confusion on John Hull?s method to calculate Minimum Variance Hedge Ratio

<r>Thank you daveangel. I thank your results are correct and I have no problem in calcuating h.However, after obtaining h, how to calculate the number of foward contract N one needs to hold?My result is N = h*QA*S/(QF*F)but John Hull's book suggestsN = h*QA/(QF)Where QA is Size of position being hed...
by EdisonCruise
December 22nd, 2015, 7:42 am
Forum: Student Forum
Topic: Some confusion on John Hull?s method to calculate Minimum Variance Hedge Ratio
Replies: 10
Views: 2586

Some confusion on John Hull?s method to calculate Minimum Variance Hedge Ratio

<r>Thank you daveangel. I agree with you. But the John Hull's book uses asset size amount.<URL url="http://financetrain.com/minimum-variance-hedge-ratio/In">http://financetrain.com/minimum-variance-hedge-ratio/In</URL> your example, I think F and S should be future and spot price. But these two pric...
by EdisonCruise
December 22nd, 2015, 12:13 am
Forum: Student Forum
Topic: Some confusion on John Hull?s method to calculate Minimum Variance Hedge Ratio
Replies: 10
Views: 2586

Some confusion on John Hull?s method to calculate Minimum Variance Hedge Ratio

Thank you. But h is a weighting of what? money amount or asset unit?
by EdisonCruise
December 21st, 2015, 5:14 am
Forum: Student Forum
Topic: Some confusion on John Hull?s method to calculate Minimum Variance Hedge Ratio
Replies: 10
Views: 2586

Some confusion on John Hull?s method to calculate Minimum Variance Hedge Ratio

I think there is some doubt here. Does hedge ratio here means money amount ratio or unit amount ratio?
by EdisonCruise
December 21st, 2015, 4:58 am
Forum: Student Forum
Topic: Some confusion on John Hull?s method to calculate Minimum Variance Hedge Ratio
Replies: 10
Views: 2586

Some confusion on John Hull?s method to calculate Minimum Variance Hedge Ratio

<r>Suppose the spot price is S, forward price is F. S and F are the prices of two correlated asset. John Hull?s book directly gives a method to calculate Minimum Variance Hedge Ratio <URL url="http://financetrain.com/minimum-variance-hedge-ratio/as">http://financetrain.com/minimum-variance-hedge-rat...
by EdisonCruise
December 17th, 2015, 8:55 am
Forum: Trading Forum
Topic: How to pick up Vector Autoregression Factor? Return or Price?
Replies: 2
Views: 2767

How to pick up Vector Autoregression Factor? Return or Price?

OK. Thank you. I think I have to try to make it.
by EdisonCruise
December 17th, 2015, 8:54 am
Forum: Technical Forum
Topic: Does mixed-frequency Vector Autoregression help to improve forecasting performance?
Replies: 0
Views: 1721

Does mixed-frequency Vector Autoregression help to improve forecasting performance?

<t>I am now using VAR to forecast asset return. I am trying to combine daily asset data with monthly or weekly macroeconomic data in order to improve the forecasting performance of my model. I indeed find some literature on mixed-frequency VAR. Typically the research work by Eric Ghysels. However, I...
by EdisonCruise
December 11th, 2015, 8:17 am
Forum: Trading Forum
Topic: How to pick up Vector Autoregression Factor? Return or Price?
Replies: 2
Views: 2767

How to pick up Vector Autoregression Factor? Return or Price?

<t>I am making a VAR model to forcast future price. The factors include other commodity price, interest rate, FX rate, commodity storage and so on.I find most literature uses asset return as VAR input factors, but my back test result shows that if I directly use prices as input, the result looks muc...
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