Study on the VaR-VEC-GRACH Model for Optimal Dynamic Hedging Strategy

摘要

This paper based on the modern hedging theory, with reference to the minimize Value-at-Risk (VaR) of static hedging model, proposes a minimize VaR of dynamic hedging model—VaR-VEC-GRACH model. The model considers the cointegration between futures and spot, fat-tail and volatility-clustering features of return on financial assets, so that it is more comprehensive and accurate to estimate the optimal dynamic hedge ratio. In the evaluation of hedging efficiency, we introduce Sharpe ratio as a performance evaluation index. By the empirical analysis of Shanghai Copper Futures, employing Sharpe ratio as evaluation indicator, the results indicate that this model provides far superior hedging performance, comparing with others which minimize variance (MV) as the objective, such as OLS, ECM and GARCH. It also provides hedgers a more effective risk management technique.