An Empirical Comparison of Hedging Strategies with Financial Futures and Options on Futures

Ramin Cooper Maysami


Hedgingfixed rate mortgage (FRM) portfolios with financial futures and options is suggested to substitutes for the adjustable rate mortgage as the hedging instrument. This study examines the comparative benefits of hedging the FRM through selling futures, buying puts, and the combined buy-putlsell-call strategies in lowering the standard deviation of returns of the unhedged portfolio over the period 1983 to 1991. The results show that covering the FRM through futures and options markets strategies are successful in lowering the variability of returns. The relative advantage of each strategy in terms of
the mean-standard deviation pairs, however, depends on the direction of interest rate movements. Since the primary purpose offinancial institutions in hedging interest rate risk associated with their portfolio of fixed rate mortgages is to
prevent values from falling as well as to reduce the variability of returns, the use of put options and finanCial futures as the hedging instrument is recomended.

Melindung nilai portfolio-portfolio gadai janji berkadar tetap (FRM) dengan menggunakan niagaan ke depan kewangan dan opsyen telah dicadangkan bagi menggantikan penggunaan gadaijanji berkadar berubah sebagai suatu instrumen untuk melindung nilai. Kajian ini meneliti kelebihan melindung nilai FRM dengan cara menjual niagaan ke depan, membeli Put dan secara
gabungan strategi beli Put/jual panggil dalam mengurangkan sisihan piawai bagi pulangan portfolio yang tidak dilindung nilai untuk tempoh 1983 hingga
1991. Penemuan kajian menunjukkan bahawa melindung nilai FRM dengan menggunakan strategi pasaran niagaan ke depan dan opsyen berjaya mengurangkan kebolehan ubahan (risiko) pulangan. Kebaikan secara relatif
bagi setiap strategi dari segi pasangan sisihan piawai dan min, walaubagaimanapun, bergantung kepada arah pergerakan kadar faedah. Oleh sebab tujuan asal institusi kewangan dalam melindung nilai risiko kadar faedah
yang berkaitan dengan portfolio FRM mereka ialah untuk menghalang nilai daripada jatuh dan juga untuk mengurangkan kebolehan pulangan, maka penggunaan opsyen Put dan nigaan ke depan kewangan adalah diperakukan sebagai instrumen untuk melindung nilai.

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