The Hedging Of Index Futures Considering The Exchange Rate

There are mainly two kinds of risks in the stock market: systematic ones and unsystematic ones. Systematic ones are determined by Macro factors which are difficult to be averted through portfolios. But people have designed the index futures, which have two functions: Price discovering and risk transfering to solve the problem. Risk transfering also called hedging in this article is more important. Since 1980s, there are more and more studies at home and abroad. But most of the researchers put their attention upon stock index future price. Few people considered other important factors such as exchange rate in this article. First, we introduce the background; and some historical models; Then the model designing-Philipps-Perron unit root testing, VAR integration testing and MGARCH-VAR models.We selected Nikkei index, Nikkei index futures and Yen and US dollars exchange rate for research. The research steps are as follows: To judge their stationary, we took these three time series for PP-Unit Root Test at first. We found that they all had unit root. So they are unstationary. But after one order difference, they become stationary. In accordance with Granger causal relationship theory, they Satisfied the Cointegration ralitionship. Because there are three groups of data, the Granger causal relationship theory and ECM(Error Correction Model)is not applied. We bring VAR-cointegration test in this article. Finally, we use the MGARCH-VAR model with the consideration of the Yen-US dollar exchange rate. The comparison with the other models shows that,the MGARCH-VAR model is the best one with respect to the minimum variance uniteron.this means that the exchange rate plays a very important role in model construction.