  We consider a futures hedging problem subject to a budget constraint that
limits the ability of a hedger with default aversion to meet margin
requirements. We derive a semi-closed form for an optimal hedging strategy with
dual objectives -- to minimize both the variance of the hedged portfolio and
the probability of forced liquidations due to margin calls. An empirical
analysis of bitcoin shows that the optimal strategy not only achieves superior
hedge effectiveness, but also reduces the probability of forced liquidations to
an acceptable level. We also compare how the hedger's default aversion impacts
the performance of optimal hedging based on minute-level data across major
bitcoin spot and perpetual futures markets.
