Research On China’s Stock Index Future Hedging And Roll Strategy

Stock index future hedging is a risk management strategy that use stock index futureon the opposite position of spot to hedge volatility of spot market and averse risk. The coreon stock index future hedging is to calculate the hedging ratio base on a suitable hedgingmodel. But not only to establish a suitable hedging model, some other problems need to beresolved, for example strip-roll strategy. The optimal strip-roll strategy can lead thehedging process successful and bring the excess returns.Six chapters consist of this dissertation. Chapter One is a introduction and literaturereview, which review previous research and contribution; Chapter Two is a introduction onconcept of future hedging and general framework of research on future hedging. InChapter Three we derive the hedging model on minimizing the variance, and do theempirical test on it. In Chapter Four, we compare the liquidity of the contracts of China’sstock index future, to choose suitable contact for the strip-roll strategy. We derived thetheory model of optimal strip-roll strategy in Chapter Five and conducted empirical test onthe strategy.The major work we finished in this dissertation included:1. Base on the previous related research, we summarize the general framework ofresearch and the process on future hedging.2. On the target of minimizing the risk, we conducted empirical study to test the hedgingeffect of constant hedging ratio estimation models and time-varying hedging ratioestimation model. Compared with mature stock index future markets, the hedging effect ofthe two models is not good enough, as the stock index future was put off not so long ago.Base on the CSI300future, sophisticated time-varying hedging ratio estimation modelcouldn’t show advantage to constant hedging ratio estimation models in which hedgingeffect of VECM is best. But we think the data capacity is not large enough, so theconclusion is not convicted3. As the liquidity is vital for the security market, so we compared the liquidity of thefour contracts of CSI300future and we concluded that the liquidity of front-monthcontracts is larger than that of far-month contracts. So we usually should use two kinds offront-month contracts to hedge and conduct contracts rolling. In this thesis, we studied twokinds of roll strategies: strip-roll strategy and mixed-roll strategy. From the empirical test,we found that the hedging effect of mixed-roll strategy is best, but the revenue of strip-rollstrategy by changing contracts is highest.