Research On Hedging Model Of Chinese Crude Oil Futures Based On Monte Carlo Simulation

On March 26,2018,Shanghai International Energy Exchange(INE)launched crude oil futures denominated in RMB,marking the appearance of China's crude oil futures market.The use of crude oil futures for hedging is one of the most important ways for energy enterprises to fix their raw material's price including crude oil.So far,a series of hedging models have been developed and widely used in the international crude oil market.Since INE's oil future market has a short history as a new market,academic literature of the hedging of China's crude oil market is extremely rare.In the empirical analysis,we select INE crude oil futures as the research object of China crude oil future.At the same time,because China's crude oil spot heavily rely on imports,we select Shengli crude oil as well as Dubai crude oil as the research objects of Chinese crude oil spot.We first compare the similarities and differences of time series' characteristics of the future and spot between the domestic crude oil market and the international crude oil market,where the international crude oil market is represented by two major crude oil varieties,Brent and WTI.We find that various statistical indicators of INE crude oil futures time series are closer to China's crude oil spot market,and the correlation coefficient between the two is also significantly higher.Besides,we find that compared with the international crude oil market,the return of INE's crude oil future and spot has common characteristics such as significant peak tail,heteroscedasticity and volatility asymmetry.And there is also some different characteristics such as significant but lower sequence correlation and left deviation feature,which can't be ignored.Therefore,we speculate that the existing hedging model based on the characteristics of the international crude oil market may not be fully applicable to the Chinese oil market.According to such characteristics,we choose the long-lag EGARCH-EVT-Copula model to fit the future and spot yields of China's crude oil market.By diagnosing the residual sequences,we prove that the long-lag EGARCH-EVT-Copula model can effectively deal with the characteristics above.Then we use Monte Carlo simulation method to calculate the optimal hedging ratio with Va R(Value at Risk)as the objective function,and construct the hedging portfolio.Then,we compare the return of the hedging portfolio constructed by the above model with that constructed by simulation with GARCH(1,1)-Copula model,EGARCH(1,1)-Copula model and TGARCH(1,1)-Copula model.Through the above research,we find that the hedging effect of domestic enterprises with imported crude oil as raw material is better than that of domestic enterprises with Shengli crude oil as raw material.If we choose the long-lag EGARCH-EVT-Copula model to fix the price of Shengli crude oil,the performance of dynamic hedging is better than that of static hedging.Besides,the performance of dynamic hedging portfolios constructed by such enterprises using high-level EGARCH-EVT-Copula model is significantly better than other models.In addition,through the robustness test,we also prove that the performance of the model is still optimal under the extreme volatility of the crude oil market.At the same time,when we replace Va R with CVaR(Conditional Value at Risk),conclusions above don't change.