Jianhua Guo.  Hedging strategies of different-risk-appetite investors based on the Wavelet transform method.  Dynamic Systems and Applications 29 (2020) No. 3, 923-937

https://doi.org/10.46719/dsa202029342

ABSTRACT.
Investors can avoid market risk by hedging. However, different investors have different degrees of preference for risk, so their hedging strategies will be different. Through the combination of variance utility function with risk aversion coefficient. This paper first try to build different risk objective functions for different risk preference investors, and then with the aid of the wavelet analysis method, the calculation of dynamic optimal hedging ratios was operated, finally, the relationship between the optimal hedging ratio, hedging effect, investor’s risk preference degree is researched in this paper. The research results showed that investors with risk preference usually adopted low hedging ratio, and the hedging effect was slightly worse, at the same time, the longer the term was, the higher the optimal hedging ratio might be.

Keywords: Risk appetite, Stock Index Future; Hedging; Wavelet transform method