Study On Futures Hedging Decision-making Model Based On Co-integration Theory

The variety of spots induces variety of future return, and then this variety influences spot holders' profit. Future market has the effect of avoiding spot market risk, so hedging effect of future market has prodigious effect on spot holders. Traditional future hedging models mainly depend on historical data to get hedging ratios, and the effect of spot price fluctuation on future price is not in consideration, so the hedging ratio usually can't get perfectible effect of hedging.This paper take base on traditional bivariate GARCH model, through introducing error correction term, considering the effect of spot price fluctuation to future price, building dynamic hedging model based on GARCH-X. GARCH-X model not only forecasts spot and future prices, but also forecasts the covariance matrix of spot and future, getting dynamic optimal hedging ratio from covariance matrix series. The first character of this model is considering the effect of shot-term spot return fluctuation on conditional variance and covariance, improving calculation accuracy of effect of shot-term spot return fluctuation on conditional variance and covariance; The second character is solving the problem that minimum variance and traditional hedging ratios can't change with spot and future variety ratios.After using sample tests, this paper gets a quite coherent conclusion, that is in general, bivariate GARCH-X model provides greater risk reduction than all the No-Hedge, Naive Method, OLS and BEKK models, it is a more effective hedge model.