Empirical Study On Gold Futures Hedging Ratio Using Copula-garch Model

With the developments and innovations of financial markets and statistics methods, how to describe the complex volatility characteristics and dependence structure among financial serials more comprehensively and accurately has become one of the key roles of modem finance theory and applications.But the traditional multivariate statistics models have the problems of'dimension disaster'and the inaccuracy of the volatility characteristics and dependence structure.The introduction of Copula to Economics field is just in time. The function could link together univariate distributions to form a multivariate distribution function. Owing to the excellent statistics properties, Copula has attached more attention in statistics and econometrics modeling as well as financial domains.Gold owns the quality of commodity, assets and money, thus the price of gold is influenced by lots of factors and fluctuates frequently. It is important to hedging risk using futures market. The gold future market in China is just at the beginning, so it will be meaningful to do empirical research on the market in China.Based on the spot and futures data of gold from Shanghai Futures Exchange, this paper takes advantage of Copula function to estimate the optimal hedge ratio of Shanghai gold futures, and investigates the hedging performance of Copula family. The results can be listed as follows: the Copula-GARCH model performs best, and the OLS model is followed, and the DCC model ranks the last, and in the Copula family, Clayton Copula and T-Copula are the best, thus Archimedean Copula is not always better than Normal Copula.