Research On Hedging Strategy Of Treasury Bond Futures In China

The restart of Treasury Bond Futures is a new force to promote market-oriented interest rate reform; it also is a new achievement of the growing financial futures market after stock index futures. It creates new ways and new means for the products and trading of the bond market, and even the whole financial market. Along with the advancement of marketization of interest rate, the intensification of interest rate risk, it is of both the use value and practical significance to The Treasury Bond Futures hedge.The purpose of this paper is to explore the effectiveness of hedge strategy of the Treasury Bond Futures.Firstly, this paper introduces the overview, history and development, and lessons learned of Treasury bond futures, and then expound its contract and pricing, focusing on the data interpretation for TF’s pricing elements: conversion factor(CF) and the cheapest-to-deliver bonds(CTD).Secondly, this paper briefly introduces the basic theories of hedge theory, expounds the calculation methods of hedge ratio including BP value method and modified duration method, and the optimal hedge ratio model of Treasury bond futures including na?ve model, OLS model, B-VAR model and ECM model. And empirically tests the effectiveness of hedging strategy of delivery of Treasury bonds and Treasury bond index separately by the Treasury Bond Futures. For the deliverable bond, it uses Treasury Bond Futures TF1409 to hedge through BP value method. The results show that the profit and loss of all the deliverable bonds after hedging are all positive, and greater than the spot’s. The hedging function of Treasury bond futures TF1409 contracts obtained the full affirmation. At the same time, it affirmed the rationality and validity of the five-year Treasury Bond Futures. For the Treasury bond index, it uses Treasury Bond Futures to hedge through the optimal hedge ratio which estimated by Naive, OLS,B- VAR and ECM model. The results show that na?ve hedging strategy has not reduced the risk, and other models of hedging strategies are successful. They can reduce the variance of return, and play the role of hedging. Among these models, OLS is better than B- VAR and ECM modes in the sample. And these models still can reduce the risk of the portfolio returns but dropped sharply, and the effects of B-VAR and ECM models are better than OLS out of sample. It is a great deal of support to the Treasury BondFutures which is just issued for a year, in the conditions of the banks and insurances which holding 80% of the Treasury bond are limited to trade the Treasury Bond Futures.It illustrates that the Treasury Bond Futures are trading well and having a space to make better. As time goes on, the hedging effectiveness of Treasury Bond Futures is expected to further enhance.Finally, this paper applies the Treasury Bond Futures to the alpha strategy to hedge the system risk of bond funds, and studies how to use the Treasury bond futures to tectonic alpha strategy in detail. It uses CAPM to estimate 632 open bond funds and rank them according to the alpha. Analyzing the stability of the top 5 single fund and different funds portfolio, using a variety of models to hedge funds portfolio, to test the effectiveness of the alpha strategy empirically. It gets some results. The first, the integral absolute returns of the entire funds portfolio are greater than zero, and the year yields of the entire funds portfolio which used alpha strategy are higher than which not used. It illustrates that the alpha strategy make successful. Then, the returns which used alpha strategy are increasing according to the order: OLS, B-VAR and ECM. ECM model is the best. At last, alpha returns are decreasing with the extension of time frames.