Analysis Of Agricultural Futures Cross Species Arbitrage Strategy

Since the first futures contract was launched, trading volumes has been raising while the participants of futures market has been increasing especially the institutional investors According to the trading data of the futures market, the trading volume increases20times and the turn volume increases70times compared with that of year2002by year2014. The level of growth of futures market is far beyond the stork market in China. Meanwhile, the futures market has been standardized. That is the pleasant aspect.But during the development of the futures market, there exists many problems, such as the high level of market risk and the ring trading, so futures market in China is still in a underdeveloped stage.In all the investment forms of futures, agricultural cross species arbitrage is a kind of investment that faces little investment risk and makes stable profit, cross species arbitrage can make no-risk profit theoretically. There should be some conditions to the opportunity of the arbitrage between the species of the arbitrage portfolio. Besides, the fluctuation of the price margin between the species of the arbitrage portfolio is more smooth and steady than the unilateral fluctuation of the price. And the fluctuation of the price margin between the species shows some regularity. But the feature of the arbitrage contributes to the lower yield than that of common futures investment. So agricultural cross species arbitrage makes sense to the participants who is moderate and has a quantity of capital such as the institutional investor.The part of the economic model analyzes the progress of the model of cross species arbitrage in futures market, gives an example to show the real feasibility in futures market and analyzes the model analysts use recently. This paper use the original trading date from the futures market to build a economic model. The model is base on the cointegration test model, meanwhile, it takes threshold as a important index in the model to prove the long-run equilibrium relationship between the species of the arbitrage portfolio and find the range where exists opportunity of arbitrage between the species of the arbitrage portfolio. Then the effect of the cross species arbitrage will be evaluated. After this,the feasibility of the agricultural cross species arbitrage will be proved. Although the cross species arbitrage in futures market faces little investment risk and makes stable profit but that also can be affected by the risk of the arbitrage itself because of the different elements between the species of the arbitrage portfolio that affect the price of the species. This paper made a analysis about the risk the cross species arbitrage might be faced with, then gives some suggestions about avoiding the risks.