Researches On Hedging Performance Of Chinese Futures And Hedging Strategies For Processors

Being influenced greatly by international markets, China's commodity market prices are fluctuating increased sharply with economic integration wave's sweeping across the world. China's enterprises constantly face high price risk. They urgently need to use futures markets to hedge this. If the enterprises do not understand the futures market laws and not take timely and effective countermeasures, they will suffer enormous loss. Even worse the whole industry will die of some devastating cases.China's enterprises are all agreed that they will use comprehensively the information from futures markets and their production environment when they carry out hedging. But they all have no good idea about how to do it. They could not agree that what the reasonable hedging ratio should be. Without investigating on the Chinese futures market in-depth and considering the concrete market situation at the same time, that enterprises' getting bad hedging performance is easily foresaw.According to Chinese futures markets' situation, this paper investigates the related enterprises' hedging strategies in order to help them hedge correctly and to improve hedging performance. How are Chinese futures markets' hedging performance? What would the related enterprises do according to different market environment? These are the two questions answered in this paper.From the perspective of the practice of hedging, there are still some insufficient in existing researches as the following:â‘ Researches on hedging strategy for futures commodity processors are still less.â‘¡Researches on combining hedging strategies with hedging performance of futures market are less.â‘¢No universally applicable methods to determine the optimal ratio is found.â‘£Researches on Chinese enterprises' hedging strategy is still less and lack of practicality.In this paper, the enterprises' hedging behavior is divided into two types i.e. conservative hedging and aggressive hedging. From this unique perspective hedging decisions for Chinese futures commodity processors are investigated in this paper. The amended common trends model for multiple-variant co-integration time series is used in order to evaluate the hedging performance of different futures market objectively. This method overcome the difficulties in the following:â‘ A small data size in Chinese emerging futures markets;â‘¡The comparability of results of different methods;â‘¢Conclusions' universality for different hedging horizon.Based on the existing researches, this paper make two important improvements through building a more realistic model and employing a concrete cumulate distribution function. They are of the following:â‘ Simplify complex issues;â‘¡Quantify the non- operational qualitative research.The main original results are of the following:1. The hedging performances of six major Chinese futures and two American futures are studied in this paper by employing the common trends model for multi-variant co-integration time series. Two different results from the existing research are obtained. The hedging performance of SHFE Cu futures is not worse than those of COMEX Cu futures and CBOT Cora futures. There are significant differences among the hedging performances of different futures in China.2. From a unique perspective of hedging for processors, this paper divided enterprises' hedging behavior firstly into two types i.e. conservative hedging and aggressive hedging. The classification standard is also given firstly. Based on this, the hedging strategy for the futures commodity processors facing random demand under completely competitive condition is modeled. This is a most practical model in the existing model of hedging strategy for futures commodity processors. Moreover, a concrete cumulative density function is introduced in this model. An analytical solution to the model is obtained and give people a good decision-making method. The MATLAB program for numerical simulation in this paper can be used directly in aggressive hedging practice by related decision-makers.