Hedging International Foreign Exchange Risks via Option Based Portfolio Insurance

Yin, Libo; Han, Liyan

doi:10.1007/s10614-013-9414-7

Cited by 2 publications

(1 citation statement)

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“…Including USDX in a portfolio can improve returns and reduce risks. Additionally, according to [ 16 ], hedging foreign currency risk is often necessary for domestic investors who are exposed to currency volatility. [ 17 ] found the safe haven for the emerging stock market by using two hedging tools: Gold and US dollar.…”

Section: Introductionmentioning

confidence: 99%

Examining the hedge performance of US dollar, VIX, and gold during the coronavirus pandemic: Is US dollar a better hedge asset?

Yun,

Choi,

Kim

2023

PLoS ONE

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This study utilizes the hedging potential of the U.S. Dollar Index (USDX) during the COVID-19 period, specifically comparing its positive effects on optimal portfolio weights and hedging ratios with those of traditional hedging assets, such as the VIX and gold. The scalar BEKK GARCH model is employed to forecast volatility and calculate hedging indicators. The results show that USDX exhibits strong hedging abilities against S&P 500 index volatility. These findings highlight the advantageous role of the USDX as a hedging instrument, particularly during periods of heightened market uncertainty, such as during the COVID-19 crisis. Despite the increased market volatility during the COVID-19 pandemic, the value of the optimal portfolio weights is stable and the volatility of the weights is significantly reduced, demonstrating the strength of the USDX’s low risk and volatility in hedging against market fluctuations. Moreover, the increase in the hedge ratio indicates that more capital is allocated to hedging, reflecting the increased correlation between the USDX and S&P 500 index. These results emphasize the beneficial role of the USDX as a hedging instrument during times of elevated market uncertainty, such as during the COVID-19 crisis. Ultimately, USDX can provide valuable insights for market participants seeking effective hedging strategies.

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Section: Introductionmentioning

confidence: 99%