The Research And Optimization On Hedging Strategy Of Gold Option Based On Dynamic Delta Hedging Model

In the past two years,due to the influence of the Fed’s loose monetary policy,inflation expectations and geopolitical issues,the price of gold has risen,and the price of gold futures has also risen.Combined with the high leverage of gold futures,the utilization of funds participating in gold futures trading is higher than that of spot,many financial investment institutions,especially private equity funds institutions,have increased their investment in gold futures.However,due to the federal reserve policy expectations,the risk of gold futures price volatility has increased,and on December20,2019,gold futures options against gold futures(referred to as "gold options")were officially listed in Shanghai Futures Exchange,bringing new hedging tools for gold futures.This paper studies and optimizes the hedging strategy based on dynamic delta of gold options,which not only supplements the gap in the field of gold option hedging research in China,but also provides new hedging operation ideas for institutional investors who hold gold futures.The main content of this article is the research and optimization of gold option hedging strategy based on dynamic delta hedging,taking gold options and gold futures as an example in Shanghai Futures Exchange,empirical research was done on the hedging strategy under dynamic delta hedging,and the portfolio that constitute of a long position of gold put option as hedge tools and a long position of gold futures as assets was constructed,and the delta neutral of the portfolio was achieved by trading and adjusting the number of gold options.In the strategy research,this paper first studies the two commonly used hedging models of fixed time point and fixed delta range,and compares and analyzes the hedging effect of strategies with different time interval and different interval thresholds,and introduces HE and HBS indicators to test the effectiveness of strategy hedging.The empirical results show that both the fixed point and fixed range hedging strategies are effective if only the minimum variance risk is considered,but after weighing the dual motivations of risk and return,both strategies fail due to the reverse movement of the gold put option price and the underlying gold futures price.Based on the above research results,the author innovatively introduces a timing optimization strategy,when we forecast the price of the position asset will drop sharply,we implement the delta hedge strategy,and vice versa.In the determination of the timing point,the author takes the volatility leverage effect and the investor sentiment of behavioral finance as the theoretical basis,and judges the decline period of the position asset price by predicting the volatility of the position asset and combining the price trend of the past three days.In terms of position asset volatility forecasting,the author introduced the GARCH model for rolling forecasting,and after error analysis,the volatility prediction accuracy of the GARCH model is good.Judging from the empirical results of the optimization strategy,either from the perspective of variance risk control or obtaining excess returns,the timing optimization strategy model has proved to be effective and can be adopted by investors.