COMPARATIVE STUDY ON THE MODELS OF OPTIMAL HEDGE RATIO WITH APPLICATIONS TO CHINESE FUEL FUTURES

摘要

This paper investigates the problem of optimal hedge ratio and hedge efficiency of Chinese fuel futures. For this we use the data of Chinese fuel futures prices and spot prices to examine the performance of various models for hedge ratios, such as traditional regression model, VAR, EC, CC GARCH, and EC-GARCH model. We find that the latter four models provide better hedge efficiency than traditional regression model. VAR slightly improves the hedge performance. EC and CC GARCH models deduce the hedged portfolio risk by 10%. EC-GARCH model brings out the best hedge efficiency of 0.8524. Consequently, hedge strategies constructed from EC-GARCH model can significantly deduce the variance of the hedged portfolio and evade the price risk.