China To Launch Stock Index Futures

Stock Index Futures is a derivative financial facility for hedging the systemic risk of investment and the current assets. It came into use in the 1980s and has become an important part of the international capital market system and an indispensable financial facility of security companies and investment funds.The first Stock Index Futures contract appeared in KCBT on Feb. 24th, 1982. And its transaction volume has been increasing considerably on a global scale. Because the Stock Index Futures has the functions of price detection, risk aversion and asset allocation, it has become more and more important in the international financial market and is entitled the most exciting creation.China's securities market plays an increasingly important role in the national economy after over ten years' development. But on the whole, the market system still has some deficiencies and risks and the market is badly in need of risk aversion facilities. The rational development of the securities market requires the introduction of competitive mechanism and the cultivation of institutional investors. The Social Security Fund and Open Fund have been introduced into the market, so the lack of Stock Index Futures in the market is a big obstacle to achieve the above goal. Upon China's entry into WTO, the financial industry also faces great opportunities and challenges. It requires that the operation of China's financial market should follow international practice and develop financial derivatives so as to adapt to the globalization of the financial market.The paper is composed of five chapters The first chapter first introduces the concept, characteristics and the course of development of the Stock Index Futures, then deduces the pricing formula of Stock Index Futures and further analyses the functions of Stock Index Futures and the impact of its transaction on the fluctuation of the spot transactions. The second chapter demonstrates the need and feasibility of the introduction of the Stock Index Futures in China. Through the empirical analysis of the market risk of China's stock market, we can see that the risk difference between individual stocks, so a portfolio investment won't help much in risk aversion. Therefore, a timely introduction of the Stock Index Futures is necessary for meeting the requirements of the mass investors and the development of China's securities market. The third chapter expounds the selection of index of China's Stock Index Futures. I select nine most popular stock indexes and analyze their risk-yield characteristics, the distribution of yield rate and the relativity of daily yield rate. I also propose my design of the indexes for China's Stock Index Futures. The forth chapter discusses in detail the design of China's Stock Index Futures. We should follow certain principles and use other country's successful experience for reference. The fifth chapter discusses the risk management of China's Stock Index Futures. Itis realized through three aspects, namely the setting, transaction and regulation of Stock Index Futures.On the whole, the introduction of China's Stock Index Futures favors the improvement of the function and mechanism of China's securities market, the strengthening of its international competitiveness and the providing of better service for international capital inflows.