Rmb Derivatives Market Econometric Analysis

In recent years, with the gradual opening up of China's market, market participants used more RMB derivatives for trading and hedging. At the same time, due to the strong interrelations among the international financial markets, the offshore yuan derivatives may also influence china's onshore financial products pricing. All of these changes will become the great challenges for Chinese enterprises, financial institutions and regulatory authorities, who are lack of relevant experience. In this context, understanding the dynamic interrelations between the offshore and on shore RMB derivatives markets makes important theoretical and practical significance.In this paper, we used empirical analysis to study three main aspects: the dynamic interrelations among the RMB spot, forward, and NDF market; the efficeincy of RMB forward market; and the risk premium of RMB/USD forward exchange rate and its volatility characteristics.When considering the dynamic interrelations between Renminbi SPOT market, DF market, and NDF market, we found that in the yield area, there exists a positive feedback overflow effect between the Spot and DF market, the Spot and DF market do not have an overflow effect to the NDF market; the NDF market has a positive overflow effect to the Spot and DF market. In the volatility area, the NDF market has a positive asymmetrical overflow effect to the Spot and DF market; there exists a positive asymmetrical feedback overflow effect between the Spot and DF market; whether the Spot or the DF market, none has an overflow effect to the NDF market. When adding central bank of china's reference rate into the model as a new variable, we can get that the RMB exchange rate's pricing power is still vested in china's central bank.RMB's forward exchange rate contains the information of the future sopt rates, so RMB's forward exchange rate market is not effective. At the same time, we also showed that there was a time-varying risk premium in RMB's forward rate market.Since April 1, 2003 so far, particularly since the implementation of the new exchange rate system, there is a time-varying risk premium in the RMB's forward exchange rate market. The new exchange rate system in 2005 and the global slump in 2008 lead a structure change to this risk premium, and the volatility of the conditional beta is the main factor which will influence the volatility of the risk premium.