Stock Portfolio Selection Based On Malmquist-DEA And Futures And Option Dynamic Hedging Strategy

Facing the complex stock market,how to choose stocks and conduct risk management is of practical significance.This paper utilize the Malmquist-DEA model to construct the stock portfolio using the data of the underlying shares of 50 ETF during the period of recent five years and test the allocation ways of fund as well.Then we conduct the risk management of the stock portfolio,by using the 50 ETF option for Delta hedging.The effect of option hedging is not good when the correlation between the selected stock portfolios and the ETF index is low.Due to market policy constraints,we cannot short the 50 ETF,so further derivatives are needed to hedge the options we held.To improve the return of portfolio,SSE50 stock index futures is introduced for the risk management of 50 ETF option.We calculate the Greeks,then analyze the hedging options positions everyday and the impact of transaction cost and the influence of volatility models on hedging effectiveness.Dynamic hedging can achieve good hedging effect.The main conclusions of this paper are as follows:(1)The Malmquist index model is applicable in our country,the stock portfolio we select is better than the benchmark and efficiency-score allocation method is better than equal-weight allocation method.(2)The hedging effect of the 50 ETF option is poor because of the low correlation between portfolio and SSE50 index,so further risk management of options is needed.(3)The introduction of SSE50 stock index futures can improve the return of profilio greatly.(4)The equal weight moving average model performs better in dynamic hedging.And Garch(1,1)model is better in static hedging.This paper constructs an three-stage investment strategy containing stock selecting,funds allocation and derivatives hedging.The innovation point of this paper is that we test the Malmquist-DEA index model's applicability in China stock market and explore the way to utilize derivatives for risk management.We hope we can provide investors with stock risk management strategy with derivatives.