The Comparison Of Optimal Hedge Retio And Hedging Effectiveness Of Oil Futures

The demand of energy in the worldwide has continually grown with the development of economy. Nowadays, the oil market has become the world's biggest commodity market with the expansion during these decades. But the volatility of oil price influents economic activities in the worldwide more obviously. China's fuel futures (SHFU) was born in August, 2004. It is the first oil futures and plays a very important role in China's future market. As the economy in China runs in the high way for many years, its reliability on energy becomes more and more serious. When we turn back to the global market, the problem of how to use the futures market to discover price and to find out the optimal hedging performance becomes the key point of providing both health developing environment and the rapid development economy in China.The West Texas Intermediate (WTI) and BRENT are types of crude oil used as benchmark in oil pricing. They play an important role in price discover because of the active volume and good monitor system. This paper selects SHFU^ WTI and BRENT, using various models (OLS,VAR,VAR-GARCH), not only to estimate the optimal hedge ratio and hedge effectiveness but also compare the performance of three different crude oil futures contracts.The results are as following:(1) The hedging ratio of SHFU and BRENT futures contracts estimated by VAR model perform better than the time varying model, which is more suitable for WTI and get the highest hedging ratio and hedging effectiveness. But the OLS model does not perform well. (2) The hedging performance of WTI is best either in-sample or out-sample, while the gap between SHFU and BRENT is not so big.