Constantine Asaturov

Tamara Teplova

In the paper we propose an original method for constructing a dynamic hedging strategy based on multivariate GARCH models for the marketability of the Russian stocks. Hedging instruments include stock futures. The method provides a calculation of dynamic hedge ratios instead of the traditional method of ordinary least squares (OLS), which determines the constant hedge ratio. Analysis of spot and futures Russian markets showed that 1) it is the dynamics of the futures market that affects the behavior of the stocks’ prices, 2) for all pairs of stock-futures there is no asymmetry in the conditional correlation of returns, 3) there is an asymmetry in the conditional volatility, and 4) GARCH class models allow to construct a method of calculating hedging ratio for portfolio with the best characteristics of “risk-return” profile.