Research On The Optimal Hedging Ratio Of Copper Futures Based On Volatility Uncertainty

China’s demand for copper continues to grow,the contradiction between supply and demand is outstanding,the natural commodity characteristics of copper makes its price fluctuate greatly.The companies that use copper as the main raw material are faced with the great risk caused by the price fluctuation,so the companies need to take corresponding measures to reduce their risks.Spot and futures have a co-movement relationship,and some studies have found that the copper futures market in China is relatively well developed and has high price discovery efficiency,so companies can use copper futures to hedge.Then how to determine the optimal hedging ratio becomes a crucial issue.The theoretical research on the hedging model in this thesis is divided into two parts.The first part is the hedging model based on classic circumstances,including OLS model,B-VAR model,VECM model and DCC-GARCH model.The other part is the hedging model based on volatility uncertainty proposed in this thesis.Assume that both spot and futures yields have volatility uncertainty,and refer to the classical hedging model,considering copper spot and Shanghai copper futures as a portfolio.Minimize the upper variance of the portfolio,in another word,minimize the worst risk that the portfolio may encounter,and get the formula for calculating the optimal hedging ratio.Empirically,the present copper futures contract on the Changjiang Metal Trading Market and copper futures contract on Shanghai Futures Exchange are selected as the research objects in this thesis.In terms of the composition of futures contracts,this thesis is not limited to the main contract used in most scholars’ research,but also considers the contract of next month,the contract of current quarter and the contract of next quarter.From the perspective of different models and different futures contracts,the optimal hedging ratio is calculated respectively,and the hedging effect is evaluated by two indexes:the degree of variance reduction and the degree of upper variance reduction.The results show that the five models mentioned in this thesis can effectively avoid the risk of price fluctuations.From the perspective of different contracts,the hedging effect of the contract of next month and the contract of current quarter are relatively good,but the hedging effect of the main contract used by most scholars is not ideal.From the perspective of the model,with the improvement of the hedging model,hedging efficiency continues to improve,the performance of the hedging model based on volatility uncertainty is the best,no matter the degree of variance reduction or the degree of upper variance reduction is taken as the measurement index.This thesis enriches the research on hedging.At the same time,the empirical analysis provides new ideas for companies to carry out risk management.Companies can choose the hedging model rationally according to their actual situation.