Analysis of hedging based on co-persistence theory

TL;DR

This paper explores the relationship between co-persistence and hedging, introducing a new exhaustive search algorithm for co-persistence ratio and a combined hedging strategy to improve effectiveness, demonstrated on stock index futures.

Contribution

It presents a novel exhaustive search method for deriving co-persistence ratios and a new hedging strategy combining co-persistence with dynamic hedging.

Findings

The co-persistence ratio acts as a long-term hedging ratio.

The new strategy enhances hedging effectiveness.

Application to stock index futures demonstrates practical benefits.

Abstract

This article analyzes the relationship between co-persistence and hedging which indicates co-persistence ratio is just the long-term hedging ratio. The new method of exhaustive search algorithm for deriving co-persistence ratio is derived in the article. And we also develop a new hedging strategy of combining co-persistence with dynamic hedging which can enhance the hedging effectiveness and reduce the persistence of the hedged portfolio. Finally our strategy is illustrated to study the hedge of JIASHI300 index and HS300 stock index future .