Application Research On The Cross-breed Arbitrage Of O-U Model In Agricultural Futures Market

In recent years,with the process of China's financial reform and the evolution of the capital market,the trading volume increases dramatically in China's commodity market.It makes China's commodity market enter the first group in the rank of the global commodity market.The influence and discourse power of the international commodity market are also increasing year by year.Meanwhile,for the sake of strong government support for China's commodity market,investors worldwide have great confidence for the prospective development of China's commodity market.As an important part of the market,the agricultural product market attracts much attention.However,China's commodity market is established later than other main futures markets,the popularity of education is relatively low.Many investors in the futures market like to trade in a speculative way.Currently,investors in China's commodity market are mainly individual investors,so the extent of speculation behavior is obviously high.To keep the healthy development,it is necessary to provide a trading method with less risk to investors in the market.As a typical trading method developed for many decades in the futures market,Arbitrage trade is continuously popular in western developed countries,which mainly results from its traits such as stable earnings and low risk in different market environments.A source of the stable earnings,mainly because of the arbitrage contract is used in the process of arbitrage trade which is between two or more varieties of high correlation,this highly relevant guarantee when spreads series from arbitrage contract have abnormal fluctuations,they can return to the mean position in a large probability.This feature generate the profit source of arbitrage trade.At the same time,trade arbitrage contract in different orientations(buy or sell)with similar trade size,in order to hedge a majority of system risk.Therefore,in most cases,arbitrage trading can control investment risk well and gain stably returns.Because O-U model works well in the measurement of mean reversion process,it is always applied to the arbitrage trade in stock and stock index markets.In this paper,it is innovative to introduce O-U model into the agricultural futures market to make arbitrage trade of across varieties,use the soy oil and palm oil which is occupying the important position of agricultural products market to building data base.On the one hand,this paper test the application of the O-U arbitrage model in the agricultural product market by establishing the O-U arbitrage model and testing the sample data.At the same time,this paper also test the extensive abilities of O-U arbitrage model by establishing the fixed standard deviation model and GARCH model.On the other hand,according to the working characteristics of the arbitrage model,the sample data is divided into two types:intermediate frequency and low frequency.By modeling separately,we can find out that which frequency of O-U arbitrage model can obtain more stable earnings and lower rate of withdrawal.And it turns out,O-U model is excellent in the profitability of cross varieties arbitrage in agricultural market and can have stable returns.The O-U model is stable in three arbitrage models and good at yields,meanwhile the rate of withdrawal is also relatively low.In terms of data frequency,the o-u model is more suitable for intermediate frequency data and can gain better profitability and lower retreat.