China’s Copper Futures Market Volatility And Risk Measure Research

Futures as an important financial derivative has acquired rapid development since its birth for its strong risk aversion function and price competitiveness. It has become an indispensable part to the world capital market. For its perfect performance in the successive financial crisis since the1950s, it has become the top choice to guard against risks. Western futures market was born in the Chicago Commodity Exchanges in1948, the future market in China took shape in the early90s. Compared to the developed countries in the West, the futures market in China is still at its initial stage, but it is developing very fast. Take the copper futures for example, the Shanghai Futures Exchanges is now one of the world’s three largest markets defining the price of the copper futures. And copper becomes one of the largest and frequently exchanged futures in China’s futures market. The world economy suffered greatly in the financial crisis from2007to2008. The price of copper futures in China suffered a slow-down. And now it is still in slow recovery. Against this backdrop, it is of great practicality to study the floating features of the copper futures market in China and measure its risks.The paper start from the reality in China’s futures market and the data is collected from early2004to late2013. The methodology employed is to combine theoretical analysis and empirical study as well as qualitative and quantitative analysis into the floating features of the futures market in China. Based on this, the measurement of the market risks is conducted to proposed the best risk aversion measurement model for China’s copper futures market. The paper has the following parts:first, literature of foreign and domestic study on market floating features and risk measurement is reviewed so that we can get a better understanding of the research status. Then introduction to copper and its futures is made to present a basic recognition of the subject. Second, empirical study is employed to conduct research on the time sequence of the copper futures return rate in China. It is found that the it has the features of stability and high ARCH effect. Then GARCH model is engaged to find the features of the copper futures return rate in China:concentration in floating, long-term memory, asymmetry and the hit of bad news is greater than the good news. After that, based on the research of the floating features, GARCH-based measurement of the risk in China’s copper futures market is conducted based on normal distribution, t distribution and GED distribution. Var value is calculated under the three credibility level of90%,95%and99%. Then the Var value is tested and result is found that the t distribution based EGARCH model can best suit the copper futures market in China in a long time period. At the end of the paper, a summary is made. Suggestion on risk aversion are proposed from the perspective of the futures exchange, futures company and investors. Besides, limitations of the paper are presentd.