Research And Conceptual Design About Hedging And Arbitrage Of Kelong Company

Since November of 2003, I was invited by Kelong company for settling some problems about how to avoid the risk of the cost of purchase.Through making investigations, the important problem of kelong company is that purchase cost unable to control (because prices go up fast at raw materials market in recent years), and the cost of purchase has three heavy parts, which are copper, aluminum, and SM.The main function of futures market is to offer the place that the risk is avoided for spot market, It combines the situations of futures markets in civil, I think hedging is the best way for kelong company.I must deal with some questions as follows according to the fact of kelong company. Firstly, how to hedge about some goods which have relative futures trading in futures market. Secondly, how to hedge about some goods which have not relative futures trading in futures market. The last is how to effective reduce the cost of the risk margin.In the first part, according to the tendency of markets of copper and aluminum and the practical requirement of kelong , I designed the hedging plan of copper and aluminum.In the course of researching , I met two key problem,which are how to hedging of SM and how to deal with the numbers of risk margin. Specially, the former has never be researched in civil . From researching the component of SM and correlativity about SM and oil, I success gettingthe way of hedging of SM,which is oil futures. Though the way , we can settle the problem about how to control the cost of SM.Since the margin of kelong is so huge(RMB 13406750 /per month), and only 40 percent of the total margin be used to hedge, so there is a new problem produced, which is how to effective use the risk margin to decrease the cost of capital. But the function of risk margin is to defend the risk of opening margin , so which can not be invested into speculation. After compare the markets and relative futures sorts, finally, I found the best way to settle the problem,which is arbitrage between metals , I explain the way from three parts, which are how to choice futures markets, the correlativity of copper and aluminum in same or different markets (SHFE and LME) , and how to deal with practical trading. In the first part, I get the coefficient of correlativity of the four futures pieces though 5 years data in the past.And though study of correlativity , I explicate how to effect to hedge and some important things related.Finally, I further discuss the information of the risk of exchange and how to use futures option to hedge.