Dynamic Modeling of Estimating the Optimal Hedge Ratio of Gold Coin with Saffron Futures Contracts

Abstract

This research is an attempt to introduce a desirable pattern for Dynamic Modeling of the Estimated Optimal Ratio of Gold Coin Risk Coverage. Given the unique nature of Iran in producing and supplying saffron and weakness in the commercial sector of this product, it was necessary to supply this product through the Iranian Stock Exchange. Following the presentation of the Saffron Deposit Certificate in the Iranian Commodity Exchange in 2017, the futures contracts for saffron in the Iranian Commodity Exchange were defined in 2018. On the other hand, the gold coin futures market was halted in 2018 due to the volatility of the gold coin market. Therefore, considering the importance of estimating the risk coverage in financial markets, in this study, we modeled the estimation of the optimal ratio of daily gold coin risk with respect to the future contracts of saffron from May 22, 2018 to October 22, 2019, through the Coppola functions and wavelet analysis. And the combination of these two models is discussed. The results of the study show that the saffron futures market is able to estimate the risk coefficient of gold coin cash market risk and that investors can use this market to cover their risk. In addition, in terms of structural dependence on the basis of the Coppola functions and wavelet decomposition, it results in an optimal estimation of the coverage over the medium and long time periods.

Keywords

• the optimal hedge ratio
• coppola functions
• wavelet analysis
• future market saffron