China's Gold Futures Contract Based On The Ecm - Bgarch Model Hedging Ratio

In the market economy, commodity prodution operators who faced the most direct risk is price fluctuation in the production and management process, while, futures hedging can provide such a powerful tool which can avoid, transfer or disperse the price risk, that’s just the reason why futures developed. As a tool of hedging, futures have been widely used by the major operators now, but it is still a difficult problem for us to estimate the accurate hedge ratio, at the same time it is also a hot topic in the field of futures theory.As a kind of special commodity, gold has played an important role in the international economic activities. With the sustainable development of the world economy, our demand for gold is increasing in volume. While the unique dual attribute of gold in commodity and financial determines the factors which impact the price is very complex. As the world’s largest gold consumer, price fluctuations of gold can produce a greater impact on Chinese gold industry chain, so more and more gold smelting, producing and processing enterprises are aware of the importance and urgency of hedging. The core problem of hedging is how to estimate the hedge ratio better, in order to minimize basis risk.Lien&Luo (1993), Chosh (1993) and Chou, Fan&Lee (1996) are respectively proposed the error correction model which can estimate the optimal hedging ratios, and used two step method to estimated. As a kind of important econometric model in specific forms, error correction model (ECM) has a better effect in the study of non stationary time series and co-integration relationship of series. Baillie and Myers (1991) proposed BGARCH model, they used BGARCH model to estimate the optimal hedging ratios in American agricultural products futures. Two dimensions of GARCH (BGARCH) model has made up a defect that GARCH model can not reflect the sequence of the covariance in the study. According to OLS model, ECM model, constant two dimension GARCH model and two dimension D-BEKK GARCH model, this paper provide the optimal hedging ratios which estimate through ECM-BGARCH method, and gets better results.