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Optimal hedging using cointegration

journal contribution
posted on 2023-06-08, 12:21 authored by Carol AlexanderCarol Alexander
Cointegration is a time-series modelling methodology that has many applications to financial markets. When spreads are mean reverting, prices are cointegrated. Then a multivariate model will provide further insight into the price equilibria and returns causalities within the system. Spot–futures arbitrage, yield–curve modelling, index tracking and spread trading are some of the applications of cointegration that are reviewed in this paper. With the demand for new quantitative approaches to active investment management strategies there is considerable interest in cointegration theory. This paper presents a model of cointegrated international equity portfolios which is currently used for hedging within the European, Asian and Far East countries.

History

Publication status

  • Published

Journal

Philosophical Transactions A: Mathematical, Physical and Engineering Sciences

ISSN

1471-2962

Publisher

The Royal Society

Issue

1758

Volume

357

Page range

2039-2058

Department affiliated with

  • Business and Management Publications

Full text available

  • No

Peer reviewed?

  • Yes

Legacy Posted Date

2012-09-25

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