The Empirical Research On The Hedge Ratio Of Iron Ore

In recent years,the price of iron ore fluctuates sharply,iron ore companies have strong demand for iron ore hedging.On October 18,2013,iron ore futures was listed on the Dalian Commodity Exchange,providing a possibility for iron ore companies to carry out iron ore hedging.The traditional hedge ratio is 1:1,but its hedging effect is not ideal.Therefore,how to determine the hedge ratio has becomethe key issue of enterprise hedgingrisk management.In this paper,we sort out the contents and results of the hedging theories and models both at home and abroad.Then we introduce the basic characteristics of iron ore futures and the important concepts of hedge,and do research on iron ore hedging model.The empirical analysis is the core content in this paper.We treat iron ore spot position and futures position as a portfolio,and estimate iron ore hedge ratio from the perspective of minimizing the portfolio risk.We choose the iron ore futures price and spot price as sample data:the daily settlement price of Dalian Commodity Exchange iron ore futures,and the daily cash price of Australian iron ore with 61.5%iron content in Qingdao Port.Totally,there are 488 pairs of sample data which from 2015 to 2016.According to the distribution characteristics of the data,the OLS model,ECM model,GARCH model,TGARCH model and EGARCH model are used to estimate the iron ore hedge ratio.At last,we use the measure method of risk minimization to compare the hedging performance of each model.The empirical analysis shows that iron ore futures price and spot price tend to converge,and the spot risk positions can be hedgedthrough futures trading.Compared to not hedging,using the models in this paper can reduce risk to a certain extent.And ECM model is more suitable for estimating the iron ore hedge ratio,its hedging performance is optimal.Therefore,in the time interval of the sample,the most suitable model forestimating the iron ore hedge ratiois ECM model in China.Its estimated hedge ratio is the optimal hedging ratio.To some extent,it provides an effective method and advice for investors to carry out iron ore hedging.