Research On The Optimal Hedge Ratio Of The Hedge With Shanghai-Shenzhen 300 Stock Index Futures

Stock price index futures (stock index futures) refers to the futures contract made by both parties promising a negotiated price for a specific date in the future for the stock index futures trading. A kind of standardized financial stock contract based on the market price of the stock.All the time, the stock market is full of risk, based on its different characteristics, stock price fluctuation risk can be divided into two types by Modern Portfolio Theory:the systemic risk and the non-systemic risk. The systemic risk, determined by macroeconomic factors, has a lasting effect in a wide range, and can not be avoided through diversification, so it is also called uncontrollable risk. The non-systemic risk occurs to a specific individual stocks, which has nothing to do with the whole market, and Markowitz’portfolio theory can help to avoid the non-system risk very well, however, hundreds of thousands Chinese investors and many investment institutions suffers great lost from the systemic risk, thus, makes it more and more urgent a task to find an effective hedging mechanism against system risk.In 8th September,2006, with the approval of State Department and China Securities Regulatory Commission, China Financial Futures Exchange was established in Shanghai, which indicated China’s entry into a substantive phase of the construction of the Chinese stock index futures market, which is also an inevitable choice brought by the development of China’s capital market into a new historical era. On 30th October,2006, China Financial Futures Exchange started up a mock trading for Shanghai-Shenzhen 300 Index futures, which brings it to an counting down phase of the first stock index futures to come into the market.Summarily speaking, there are four major functions of stock index futures, they are:1. hedging function; 2. arbitrage function; 3. price discovery 4. risk management function, in which hedging function is a basic one. So hedging function of stock index futures is a main research in this article. Here below is the organization of this article:Chapter one is the introduction, bringing issues forward, presenting the significance of the research background, achievements made home and abroad, main content and researching method as well.In the second chapter, a brief introduction of stock index futures is given, including its concept、emergence and development as well as its main functions, followed by the introduction of the basic features of the Shanghai Shenzhen 300 index futures contract and its processing course. At last, Hedging theory is brought forward.In the third Chapter, Review and assessment was made to the pricing model. of capital assets、classicalβfactor method and the revision made by author Zhou Hao-wen to theβfactor method. Based on the analysis of predecessors, the writer brought forward her own idea and extend the research to another four objects:portfolio、composite index of stock market、Shanghai-Shenzhen 300 stock index spot transaction and futures. Using three one-dimensional linear equation to modify theβfactor method, and by using both methods to conclude a mathematical deduction of the hedging ratio of such minimum hedging risk, and can better solve the problem of the optimal hedging ratio step by step.In the fourth chapter, taking China’s actual financial market condition into consideration, select 50 stocks as an investment portfolio, and collect the historical data of the price of the individual stock, the Shanghai index, the Shanghai-Shenzhen 300 stock index price and the Shanghai-Shenzhen 300 stock index futures price of the 100 days’trading time between 10th March 2009 to 31th July 2009 as samples, using OLS model to calculate the specific hedging ratio, and finally choose the time between 3rd August to 18th September 2009 as hedging period to analyze the hedging effect.Theoretic meaning:Based on the classical capital assets pricing model and hedging theory as well as the unstable feature of the Chinese stock market, using OLS model, this article probes into an advanced issue in the risk management of the portfolio of the stock market, that is to find the best way to achieve the optimal hedging ratio and to modify traditionalβfactor, so as to accelerate the perfection of hedging theory. Practical Significance:To investors, it is of great importance to evaluate its income in the stock market and spot exchange market. In this article, based on China’s actual condition, by collecting data of Shanghai-Shenzhen 300 stock index price and by studying the relativity between stock index futures and spot market as well as the practical simulation of the theory model, it helps the investors realize the function of the hedging of stock index futures and use it in quantitative analysis to make assets collocation within the controllable risk, and then to make a sensible investment decision. So it takes on a strong value in practice and application.