A Study Of Dynamic Hedging Strategy With CSI 300 Stock Futures Based On Copula-Realized GARCH Model

Since 2015, with the SSE 50, CSI 500 stock index futures have been traded, stock options is also in the pilot study, the development of domestic market of financial derivatives is more and more mature. On the other hand, the volatility of financial securities market volatility increased sharply. To avoid the system risk of stock market, the arbitrage hedging function of stock index futures is applied more and more widely, the corresponding research becomes more and more deep. The performance effect of hedging depends on the choice of hedging ratio. Therefore, it is the core issue to determine the optimal hedge ratio of stock index futures.Currently, the multiple time-varying bivariate GARCH model and GARCH family model, are commonly used in hedging. These model use the low-frequency data represented by the daily return rate, miss a lot of daily volatility information, underestimate the volatility of earnings, thus, affect the accuracy of the hedge ratio. This paper breakthroughs the limitation by using high-frequency data of the realized volatility and taking overnight returns into account. Based on the overnight information, this paper extend the realized volatility to another three types, besides, construct the Copula-Realized GARCH model to estimate the dynamic optimal hedge ratio of stock index futures. The model uses realized GARCH model to describe the conditional edge distribution of variables in order to integrate more volatility information of high-frequency data. Then, the model uses Copula function to fit the varying correlation which characterizes the dynamics of the structure between variables. Empirical results with the HS300 index and the CSI 300 stock index futures indicate that, when the ratio of variance reduction is equal to the other two models, Copula-Realized GARCH model brings the lower average hedge ratio, namely, it can use less futures contract to reach the same degree of risk hedging effect, also it can bring more excess returns. In addition, the hedging effect of Copula-Realized GARCH model with RV3 for the present of realized volatility is better than the other three types of estimators. It means that the use of scaling factor of realized volatility has better effect in hedging ratio.