Research Of Futures Hedging Under Settlement Risk

The key issue of futures markets is the determination of hedge ratio. The research of the hedge model is essential for the hedger and is a key issue of futures markets. Through hedge model to determine the hedge ratio can improve the hedge efficiency and effectively averse the risk of cash markets.There are four chapters in this paper. The first chapter is about the significant of the research, present research review, frame of the paper and main content. The second chapter is the present theory and model of futures hedging, and it also introduces the basic theory of the model of this paper. In the third chapter, we set up the principles of the hedging model of futures under settlement risk, and build the optimal hedging model of futures under settlement risk. The fourth chapter is the empirical study and the comparison analysis. The last chapter is the conclusion.The main works of the paper are shown as follows:(1)Building a new settlement risk forecast theory model which is fit for the futures hedging researchIt considers the influence of mark to market system on funds liquidity, which leads to changes of hedging determination ultimately, and forecasts the settlement risk by ARIMA model. It gives full consideration to the additional transaction costs of hedging, and guarantees the completion of hedging.(2)Specifying the hedging model of futures under settlement riskAccording to the mean-variance framework, this paper specifies the optimal hedging model of futures under settlement risk by using theory of maximization of portfolio utility, and carries out the empirical study in the end.(3)Inducing the HKL method to make the comparison analysisIt uses the HKL method, which considers both returning and risk, to make the comparison analysis, and the empirical result shows that the model of this paper has better performance than traditional hedging models.The first innovation and characteristic of this paper is that it specifies the hedging model which can reflect the settlement risk. Secondary, it uses the ARIMA model to forecast the settlement risk, and reveals the relationship between the variation of futures price and settlement risk. Thirdly, it uses the HKL method, which considers both returning and risk, to make the comparison analysis. Fourth, it carries out the empirical study, and the result of the comparison analysis shows that the model of this paper has better performance than traditional hedging models.