Research On The Optimal Hedge Performance Of Precious Metals

Since launch of gold futures in2008, its function of risk aversion and hedge has played a significant role.so,after a lapse of four years,in2012Shanghai Futures Exchange has launched another high-end precious metal futures-silver futures, this not only enriches our futures kind,but also means a step forward-another example of the pace of financial derivatives.Silver as a precious metal,is historic.Their needs are mainly industrial demand, jewelry demand and investment demand and so on. Silver futures’ coming,not only provides risk aversion to silver as raw material processing and the means of production enterprises in our country, but also for the spot market which role is to determine the silver price provides reference so that we need not restrict too much subjecting to international silver market price,this is the price of autonomy towards another strong performance.In the futures market, the play of hedging function depends largely on spot and futures markets of their extent of regulation and development of maturity,the different levels of extent of regulation and development of maturity for spot and futures market,the degree of hedging function play is different. Hedging refers to the spot position and hold the opposite direction and the number of futures contracts for hedging, in essence, is the gain or loss on the futures market to make up for the loss and profit on the spot market, so as to achieve hedging and hedging purposes.This paper’s datas are selected from August2012to September2013from Shanghai Futures Exchange and the Shanghai Gold Exchange,its daily trading data which were time series analysis and analysis and comparison of silver futures and spot price data, as well as various models of hedging effects. Focus on silver futures traders using to hedge assets on the spot, how to achieve optimal hedging results. This will be through the above four models, and combined with empirical analysis for investors to select the appropriate hedging model.Theoretical significance:silver futures as just coming species, study its function helps the futures market hedging system more perfect. Reality significance:the emergence of silver futures is mainly for our silver processing, manufacturing, production companies circumvent the spot market price arising risks. Only standardized and mature silver futures market can fully play its hedging function. Through the silver futures market hedging performance of empirical research, not only allows us to see the Chinese silver futures market development, but also help us to discover and resolve silver futures market deficiencies and problems, while silver related business risk management policy also has some reference and guidance.The research issue of this paper is the problem of silver futures hedging performance specific contents are as follows:Firstly, a brief introduction to the background, significance, main content and methods of the research.and the innovation of this paper and the follow-up study.Secondly, a introduction of the theory of hedging and the analysis and comment of foreign research which conclude the introduction of the basic concepts, features and functions of the future and the basic concept of hedging,the main content of hedging theories and the relevant literature reviewed. Thirdly, the empirical analysis on the performance of silver gold futures hedging which conclude introducing the resourse of the empirical using sample, and using the four models to empirically analysis the performance of silver futures by hedging,and evaluating the effect of hedging hedge ratio from the different model.Finally, Conclusions and Recommendations which conclude summarizing the results of this study and making recommendations accordingly.In a word,regression analyses on silver futures market and the spot market price data, using simple linear regression model (OLS), vector autoregression model (B-VAR), bivariate error correction model (B-ECM) and bivariate generalized autoregressive conditional heteroskedasticity variance model (B-GARCH) of sample data regression were performed in this paper.The conclusions are:using B-GARCH model can get the optimal hedge ratio maximum, thus hedging the best effect. Silver futures in our market is very short, but has been shown to have a futures hedging function. This is important to the our silver production, processing, marketing and other related enterprises which have long been suffering from frequent exposure to risk of the volatility of the spot market price of silver.This is also conducive to business which want to use our silver futures market hedging operation to effectively circumver our silver spot market price risk. Meanwhile, enterprises in the corresponding hedging operation, should not be confined static hedging approach and should be combined with the dynamic hedging approach to hedging operations.