Research On The Contract Innovation In Chinese Futures Market

Innovation has become an impetus to develop Chinese futures market, which demands the guidance of systematical theories after so much failure of futures contract innovations. Based on the previous researchers'work, this paper attempts to see through the dazzling financial innovation phenomena to find the nature of financial innovation, acquire the general process of the mainstream financial products innovation. The research concludes the theoretical basis and evaluation criterion and timing games about futures contract innovation. The main content includes:The domestic research is limited in the qualitative analysis on the commercial characteristic of futures contract. This paper examines the form of futures contract which a monopolistic exchange will offer to maximize transaction revenue when transaction fees are endogenously determined, and then the determinants of contract success are summarized. A necessary condition for determining the optimal fee for a given futures contract is deduced. Some examples are presented to suggest the exchange gross revenue can be promoted by introducing correlated contracts which provide the theoretical explanation for the prevalent phenomenon of introducing a set of correlated contracts.Most of previous research use liquidity criterion which can be represented by contract volume to evaluate the success or failure of futures contract. The hedging performance, however, is the foundation of the futures market, so the contract designer should farthest meet the potential hedgers demand. This paper evaluates the success of contract by two criterions of liquidity and hedging performance. The liquidity and hedging performance of existing contracts in China are studied empiricallyA non-dimensional index is designed to measure liquidity which can eliminate the absolute price and open interest difference among various contracts. The market liquidity of 11 existing contracts is studied using inter-day and intraday data in China. The non-parameter method is used to measure the difference in various contracts. The influence of volatility and trading activity on liquidity is analyzed.In order to study hedging performance of Chinese futures market, we make use of OLS, BGARCH and modified ECM-GARCH hedging models to empirically study the hedging ratio and performance of existing futures contracts in China. The results...