Research On The Basis Risk Control Mode For Grain Futures Market

In the past few decades, the grain crisis occurred frequently in the world. Althoughgovernment has taken various steps to try to minimize the effects of higher internationalprices on domestic markets, grain prices increase sharply. In this case, grain enterprisesand farmers turn to focus on futures market. And the risk of price fluctuation istransformed into the basis risk by merchandising in the futures market. How to controlbasis risk has become an inevitable question. This paper will study the question ofcontrolling basis risk and design basis risk control mode. This study adapts to thedevelopment of China’s grain future market, and it will provide a reference fortheoretical research and practical application in the future.At first, this paper summarizes the research situation at home and aboard, putforward contents and methods that would be studied. After that, the paper would definethe concepts related to basis risk, elaborate VaR method and analyze the hedging theory.On this basis, it induces the sources of basis and the reasons that lead to basis risk ingrain futures market, discusses the different effects on long hedgers and short hedgersdue to the existence of basis risk. Secondly, the paper explains the objectives, basicideas and means of controlling basis risk. It holds the opinion of focusing on access tomarket timing risk and hedging number risk which are parts of basis risk. Based on theabove analysis, design basis risk control mode for grain futures market. At last, Soybeanfutures market which has active trading serves as object of study to verify the riskcontrol mode. And the paper draws the following conclusions: VaR method thatestimates losses meets investors’ needs of regular risk management, GARCH model tosolve the dynamic hedging rate is better than the static model. Though the conclusionanalysis, this paper proposes suggestions from four points: forming a rational investorsgroup, cultivating the intermediaries quickly, reforming the state-owned grainenterprises and improving the futures trading laws.