How Can I estimate the optimal portfolio weights and the hedge ratios from the output of BEKK Garch model in Eviews ?

30 January 2023 1 6K Report

Any help is greatly appreciated.

It is straightforward in EViews and other software. Here are the simple steps for computing a time-varying hedge ratio:

Step 1: Estimate the BEKK model in EViews using spot and futures returns. Step 2: compute the time-varying correlations (rho_t) based on the covariances (because the BEKK model generates covariances). Step 3: Compute the hedge ratio by rho_t * (standard deviation of spot_t / standard deviation of futures_t). Note that one can compute the standard deviations by sqrt(h11t) and sqrt(h22t), where h11t and h22t are conditional variances that can be normally generated in EViews or other software by default.

I hope this helps!

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