Authors: Matthias Pelster; Tobias Springer
Addresses: Leuphana University Lueneburg, Scharnhorststraße 1, 21335 Lueneburg, Germany ' TU Dortmund University, Vogelpothsweg 87, 44221 Dortmund, Germany
Abstract: We suggest the use of the wavelet-approach to determine optimal hedge ratios in order to adjust risk management positions to planning horizons. The wavelet-approach permits resolution of the signal in terms of the time scale of analysis. We analyse the wavelet correlations between several time series and find significant differences in short-term and long-term correlations between exchange rates and 'background risks'. At the same time, we do not find such a difference between spot and future rates for most exchange rates.
Keywords: wavelets; time-scale dependent correlations; corporate hedging; exchange rate risks; optimal hedge ratios; risk management; planning horizons; exchange rates; background risks; spot rates; futures rates.
International Journal of Portfolio Analysis and Management, 2015 Vol.2 No.1, pp.1 - 35
Received: 05 May 2015
Accepted: 23 Jul 2015
Published online: 21 Jun 2016 *