Study On The Spillover Effect Of Oil Futures And Spot Price Fluctuations And The Hedging Ratios Of Optimal Hedging

It is brought great uncertainty for the development and investment of the oil industry because of the huge fluctuation of crude oil market price.Therefore,enterprises or investors urgently need to understand the price fluctuation relationship in the futures and spot market,which can discover the appropriate hedging methods to fix costs or profits,so as to avoid this problem.The paper uses the Russia’s ESPO Blend crude oil spot market and INE futures market as the research object that exported from Russia to China,which focuses on the price fluctuation spillover relationship between them,otherwise,it also pays attention to the ways of choosing the best hedging model from different risk management perspectives.It is not only a supplement for our existing situation to make up the lack of research on the Russian crude oil market to some extent,but also can provide necessary reference basis for the hedging of independent refineries,the main buyers for Russia’s ESPO Blend crude oil.On the basis of the above problems,the paper uses the BEEK-GARCH model to research the volatility spillover relationship between the two crude oil markets,especially using OLS、CCC-GARCH、DCC-GARCH and Gumbel-Copulacopula according to the difficulty to study the best hedging ratio.The risk measurement indicators based on Va R and ES is applied to evaluate the effects for each hedging model under the controlling volatility and downside risk.Here is the evidence.It is obvious that those two markets exist a significant two-way but opposite volatility spillover effect,while INE market has a quick respond to short-term market information,we can use OLS hedging model to control volatility risk and Gumbel-Copula hedging model to control downside risk from different risk management perspectives.Moreover,dynamic hedging operation does not need to be very frequent in the period of economic prosperity.Specifically,we can see that the best belongs to the traditional OLS model that can maximize the influence in controlling the volatility risk of hedging portfolio,reducing the risk exposure by 25.74%,followed by the hedging portfolio obtained according to DCC-GARCH model whose volatility risk reduces by 15.2%.The performance of the hedging portfolio obtained from Gumbel-Copula is not very good,only reducing the volatility risk by 9.19%.What’s more,if we consider the downside risk,Gumbel-Copula model reduces by 20.16%,and then followed by DCC-GARCH and OLS model,reducing by 13.25% and 11.04% respectively.The worst is the CCC-GARCH,only reducing the by 6.57%,Investors can choose appropriate hedging strategies from different risk management needs.After our crude oil futures market the establishment in 2018,the mechanism is more sophisticated that can truly show the reality of crude oil supply in the Asian market to a certain degree,however,it still needs to improve the price discovery function,which is necessary to get more participants involved in and makes them trade in Shanghai crude oil futures market as well as accelerate the internationalization of RMB.At the same time,investors should keep focus on the market’s tail risk and make more use of domestic crude oil futures for hedging.