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| Author: | Hautsch, N. Inkmann, J. |
| Title: | Optimal hedging of the currency exchange risk exposure of dynamically balanced strategic asset allocations |
| Journal: | Journal of asset management
2003 : OCT, VOL. 4:3, p. 173-198 |
| Index terms: | Currency Exchange rates Hedging |
| Language: | eng |
| Abstract: | Theoretical and empirical results on the magnitude of optimal hedge ratios for a dynamically balanced strategic asset allocation are presented with multiple currencies. Optimality refers to a mean-variance objective function with a time-varying risk-aversion parameter. A data-driven choice of this parameter is proposed, which is suggested by a Sharpe ratio maximisation criterion and renders the vector of optimal hedge ratios scale invariant. Empirical results are given for a European Monetary Union (EMU)-based investor with USD, GBP and JPY assets and a US-based investor assets in EUR, GBP and JPY. |
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