Optimal hedging ratio model considering skewness

The impact of the skewness in the hedger's objective function is measured using a third-order Taylor Series approximation of expected utility, and a hedging model considering skewnes was established. Based on the model, analytic optimal hedging ratio solution was derived, and the analytical solution can degenerate to mean-variance hedging ratio when the skewnesses are equal to zeros, so it is an important extension of the mean-variance optimal hedging ratio. The empirical results from Hang Sheng index futures and spot suggest that the hedging model considering skewness provided better performance than traditional mean-variance hedging model.