Study Of Replication Methods Of Shanghai And Shenzhen 300 Stock Index

Stock index futures provide a risk hedging mechanism for spot stock market trades, which effectively diversify risks from one-way hold stock holder, reduce the unreasonable price fluctuation of stocks, increase the way and chance of arbitrage trade. It also makes small trading risk and stable income realizable. In the global financial crisis of 2008, the functions of stock index futures become recognized to more people. The efficient separation of the systemic risk from stock market by stock index futures establish the basic framework of modern risk management which enables investors buy and sell commercialized risks according to their preferences. At the same time, it provides a mechanism for improving the flow of capital markets.There are several ways of stock index futures arbitrage, such as using the different prices between stock index futures and the spot stock index, using the different price between stock index futures of different months and so on. April 16, 2010 China officially launched the Shanghai and Shenzhen 300 stock index futures, and it’s the only stock index futures in china mainland. Therefore, the Shanghai and Shenzhen 300 stock index arbitrage is one of the most often used ways of arbitrage which owes great research value. The replication method of Shanghai and Shenzhen 300 stock index spot is the focus of the research, because we can’t purchased the stock Index directly. This paper will study and compare the replication methods of Shanghai and Shenzhen 300 stock index spot.This paper first discusses the basic connotation of stock index futures arbitrage theory, introduces a variety of functions and characteristics of it, tells classification of stock index futures arbitrage trading, as well as various replication methods of stock index spot. Secondly, three ETF funds according to ages, average daily trading volume and average daily turnover are chosen to establish ETF fund portfolios to replicate the Shanghai and Shenzhen 300 stock index spot. After testing the relevance, smooth relationship between ETF fund yields and Shanghai and Shenzhen 300 stock index spot, this paper use stepwise regression method to get the weights of three ETF funds to get a minimum trucking error. The paper proposes a combination of genetic algorithm and Support Vector Regression to replicate the spot. Using genetic algorithm to select stocks and using Support Vector Regression to predict the component weight of each stock. By comparing the tracking error, applying environment, advantages and disadvantages of the two methods, scope, this paper finally give the advice.