Research On Decision Model Of Oil Price Risk Management Based On Hedging Strategies

As the economy of China grows fast, the requirements of energy constantly raise. Oil accounts for a growing share in the energy structure, however, domestic oil supply can not satisfy the requirements of economic development. From 1993, China has become the net importer of oil. The degree of net oil import was reached to 52%. In face of high oil prices, we can only "passive acceptance". Therefore, the problem that oil enterprises must solve is how to avoiding oil price volatility .The paper does the research on risk management of oil price based on hedging.At first, the paper introduces the situation of study about hedging at home and abroad, and summarizes the deficiency of current research. Second, sets up an optimal hedge ration model of multi-contract on crude oil futures based on VaR and a dynamic programming model of crude oil futures hedge based on the ratio between return and risk. Hedge as an important financial tool of avoiding risk, it also has risks. Measuring the risk with VaR, Model 1 confirmed the optimal hedge ratio with the optimization objective of minimizing the VaR. Hedge couldn't eliminate the risk of price volatility. Instead, hedge transforms this high risk to risk of basis, and risk of basis is lower than risk of price volatility. Model 2 set up an optimal hedge ration model considering both risk of basis and benefits based on dynamic programming. Finally, set up a index systems including mean value of yield rate, variance of yield rate, the ratio between mean value and variance of yield rate and the hedge effectiveness to compare different kinds of models. Empirical results show that: optimal hedge ration model of multi-contract on crude oil futures based on VaR is better than single contract on crude oil futures based on VaR and traditional optimal hedge ration; optimal hedge ration model considering both risk of basis and benefits based on dynamic programming is better than only consider benefits and model 2. The research not only extends the research methods of hedging but also provides advice for our oil enterprise in futures business.