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A note on utility‐based futures hedging performance measure
Author(s) -
Lien Donald
Publication year - 2012
Publication title -
journal of futures markets
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.88
H-Index - 55
eISSN - 1096-9934
pISSN - 0270-7314
DOI - 10.1002/fut.20510
Subject(s) - futures contract , economics , expected utility hypothesis , estimator , econometrics , measure (data warehouse) , variance (accounting) , function (biology) , actuarial science , mathematical economics , financial economics , mathematics , computer science , statistics , accounting , database , evolutionary biology , biology
This note considers the estimator for the utility‐based hedging performance. It shows that the estimator incurs a downward bias, regardless of whether the conventional mean‐variance expected utility function or the more general risk‐averse utility function is adopted. Consequently, the usefulness of the futures contract is under‐estimated. © 2011 Wiley Periodicals, Inc. Jrl Fut Mark