Coverage with futures of capital titles

Abstract

IN THIS PAPER, WE DEVELOP A MODEL TO HEDGE THE VALUE OF A PORTFOLIO OF EQUITIES AGAINST BOTH THE STOCK MARKET AND THE INTEREST RATE RISKS BY USING FUTURES CONTRACTS. IN OUR APPROACH, IT IS STRESSED THE CONCEPT OF MONEY DURATION IN RISK MANAGEMENT. THE ROBUSTNESS OF THE DERIVED STRATEGIES IS ASSESSED IN TERMS OF THEIR VALUE AT RISK. THE EFFECTS OF THE MARKET RISK ON THE PORTFOLIO ARE EVALUATED IN TERMS OF: 1) COSTS ASSOCIATED WITH LIQUIDITY PREFERENCES, 2) VARIANCE, AND 3) VALUE AT RISK. BY WAY OF ILLUSTRATION, AN APPLICATION IS ADDRESSED TO HEDGE A PORTFOLIO OF SHARES TRATED IN THE MEXICAN STOCK EXCHANGE MARKET WITH FUTURES CONTRACTS LISTED IN THE MEXICAN DERIVATIVES EXCHANGE.