Stock Index Futures, The Mean Square Dynamic Hedging Strategy

The paper researches multi-period hedging in stock index futures market. That is, based on mean-variance analysis, aimed to maximum mean-variance utility function, and using dynamic programming to establish multi-period dynamic stock index futures hedging strategy. Then, this paper use the data of Taiwan security market to do empirical research, and comparing with other models.There are 6 chapters in this paper:Chapter 1 is introduction. This chapter introduces the research's background, meaning, innovation and frame. And gives a comprehensive literature summarize about the futures hedging strategies, to find the blank of previous researches.Chapter 2 summarize hedging in stock index futures market, includes the concept, type and subject, as well as the intrinsic quality, process and strategy design of stock index futures hedging. Besides, this paper is based on the theory of dynamic programming, so introduce the theory of dynamic programming in this chapter.Chapter 3 establishes the model. First of all, we make some hypotheses, and deduct the hedging ratio in stock futures market, which is similar with the commodity futures market. Based on the hypotheses, the multi-period stock index futures hedging strategy is established. Finally makes some revise of the model.Chapter 4 is empirical research, deducting the optimal hedging ratio and hedging effectiveness. Afterward we use the Taiwan stock and stock index futures data from 2003.1.2 to 2007.1.31 to do empirical research. The final result indicates that the more reluctant of risk, the larger of the optimal hedging ratio. And the multi-period hedging strategy in this paper is effective with risk-preference.Chapter 5 is comparing research. We compare the model established in this paper to the other hedging strategy. And the final result indicates the hedging effectiveness of dynamic stock index futures hedging strategy is better than minimum-variance hedging strategy.Chapter 6 gives conclusions and prospects. Moreover, raises the shortcoming existed and the places that need to be improved.