The Research On Aluminum Futures Hedging Model Based On Minimum Variance

The futures market is of great importance in that by hedging, major fluctuations of the price in the spot market can be avoided. The key of successful hedging lies in the determination of the hedge ratio, which unfortunately is a difficult task. It is therefore necessary to choose the optimal hedge ratio to minimize the risk if optimal performance of hedging is to be gained.Based upon the principle of minimal variance for the hedging portfolio, we used data concerning the daily prices of aluminum in both the spot market and the futures market, and figured out corresponding optimal hedge ratio with the help of the OLS model, the V-VAR model, the B-VECM model and the ECM-GARCH model. We conducted stability test upon the aluminum spot price and return ratio sequence. We also made normal distribution test, the ARCH test, autocorrelation test and ARCH test under autoregressive condition on the residual of the OLS regression.It is held by many scholars that static multi-phase regression overshadows static single-phase regression in terms of the regression performance and that dynamic regression outperforms static regression in the same manner. However, our research findings do not square with this belief. We made comparative analysis concerning the optimal hedge ratio gained by the above said models and found that the hedge ratio calculated by the OLS model was of the most satisfactory performance be it gained in the estimate interval or validated in the test interval. Therefore, we are convinced that when it comes to the determination of the optimal hedge ratio, we should choose models that are handy instead of complex ones that may prove unworthy. The conclusion of the paper is:enterprises should be to calculate the hedge ratio by the OLS model. Incorporated in this article are9figures,29tables and63references.