Research On Risk Management Based On Stock Index Futures

With the increased need of risk management in China and the introduction of the stock index futures in the near future, this dissertation discusses the risk sharing function of stock index futures in Chinese short-sale constrained market and studies the risk management strategies with stock index.The main contents of the dissertation consist of two parts: Discussing the risk sharing function of stock index futures in Chinese short-sale constrained market based on the financial economics theory (chapter 2); Studing the risk management strategies with stock index futures (chapter 3~9). Part 2 can be divided into three sectors according the risk measures, which are variance risk, higher moments risk and downside risk.The detailed content is as follows:(1) Chapter 2 proved the theorem that the markets are complete equivalents to the diffusion matrix has full rank after the stock index future is introduced into the short-sale constrained market. This theorem suggests that the introduction of stock index futures can enhance the completeness and risk sharing function of the Chinese short-sale constrained market. (2) Chaper 3 studied the asymmetric effect of basis on the conditional mean and variance-covariance of index futures and spot returns and its impacts on dynamic hedging by proposing an alternative specification of the ECM-GARCH model in which the effect is incorporated. Chapter 4 researches on the relationship between stock index futures hedge ratio and hedging horizon and the multi-scale hedge ratio formula was inferred based on wavelet analysis. The formula revealed that the optimal hedge ratio varies over various hedge horizons due to the multi-scale characteristics of volatility and correlation between index futures and spot. Empirical analysis was studied using the international index futures data. The empirical results suggested that the correlation and volatility ratio between index futures and spot vary over various time scales. Further study has suggested that the hedge ratio and hedge effectiveness vary as the variance of correlation and volatility ratio between futures and spot over various time scales. Chapter 5 develops an optimal hedging ratio model with skewness, and derives the analytical solution of the optimal hedging ratio. In Chapter 6, a dynamic hedging model considering conditional higher-order moments risk is proposed, in which the impacts of the higher-order moments are considered based on the Taylor series expansion of the utility function and the time-varying higher-order moments risk is measured using the GARCHSK model. The empirical results indicate that the dynamic hedging strategy can reduce the higher-order moments risk and increase the utility of the investor compared to the static strategy.Chaper 7 has introduced the spot-future spread basis into the GARCHSK model in order to investigate the impacts of spot-future spread upon the high-order moments of spot returns and use the model to enhance the measurement precision of the return distribution and risk characteristics. Chaper 8 using the Gram-Charlier expansion of the skewed and fat-tailed distribution of the hedging portfolio to estimate the lower partial moments and then improves the estimation method of the minimum LPM hedging ratio with futures. The empirical results in hedging with Hangsheng index futures suggests that the improved estimation method provided better performance than the method based on norm-distribution as the risk aversion of the investor increase. Chaper 9 has studied portfolio insurance based on stock index futures systematically, and then improved the conventional portfolio insurance method based on stock index futures which has replicate errors for pricing errors and margins.