Optimal Hedging Strategies in Corporate Finance: a Comparative Analysis of Derivative Instruments in Managing Market Risks

This research investigates the effectiveness of hedging strategies to mitigate market risks in corporate finance. Futures and spot prices of underlying asset will be used. The study relies on a resource-based approach to determine the main factors that affect hedging performance and conducts an empirical investigation to assess the effectiveness of hedging using two strategies: static hedging and dynamic hedging. The analysis is done with using data from gold, silver, oil, currency, and S&P500 spot and futures prices to investigate the effects of various techniques on portfolio variation, risk-adjusted returns, and financial stability. Complex econometric models will be used, such as the Vector Error Correction Model with GARCH, to calculate dynamic hedge ratios and take into account changing volatility over time. The statistical significance of hedging strategies is determined using Ordinary Least Square method. This research has a practical use for understanding the effects of static and dynamic hedging strategies on financial stability and risk management. The discoveries will provide significant value to investors and stakeholders, enabling them to make wellinformed decisions on hedging strategies and improve company risk management methods. The study additionally offers valuable insights for regulators to formulate regulations that facilitate the implementation of efficient risk management practices in financial markets