Performance of hedging with derivatives, contrast analysis with futures in CME and MexDer based on VaR and ES metrics, under a GARCH approach (2014 – 2017)

Abstract

This work examines, analyzes, and contrast the performance of hedging with the percentage of risk reduction, in currency futures contracts in two significantly asymmetric and underlying, in markets with inverse behavior in terms of party. Peso/dollar futures on MexDer, and dollar/peso on Chicago Mercantile Exchange. Analysis carried out in two steps: first, identifying the contrasts by applying traditional VaR and ES metrics; and second, applying these metrics, improving the results with GARCH approach. The left and right tails of the data series are examined, in short and long positions, considering the period from October 2016 to June 2017, divided into three subperiods. Comparing the results obtained between futures contracts with short and long positions markets, with confidence levels of 90% to 99%, testing their statistical validity with Kupiec Backtesting. Observing each other in general. Hedging in the CME shows better performance under the GARCH approach with ESG metrics; however, it shows significant fragility below the 99% confidence level.