The Rollover Hedging Study Based On Shanghai Copper Futures

In the futures market,producers,operators and consumers use futures to hedge the risk of fluctuations in the spot price,so hedging is a very important way for people to manage risk. Because of the importance of hedging in real life, many domestic and foreign scholars do researches on hedging. After Markowitz proposed the theory of portfolio, the explanation of hedging theory in the perspective of portfolio theory becomed mainstream. In this context, the optimal hedge ratio becomed one of the core issues of hedging. However, scholars of empirical studies have shown that there is not a measurement of optimal hedging ratio that was significantly better than the others. On the other hand,there are many smaller issues worth studying on the hedging,such as rolling of hedging, the cost of hedging,the period length of hedging and so on. These problems may appear not so important on the development of hedging theory, but they are the details of the issues that must be addressed in real applications, so they are necessary to study.This article will focus on the rolling hedge strategies, and make mine views on the basis of other scholars’ researches.Rolling hedges is that hedgers use a couple of short-term futures’contracts to hedge long-term risk throgh rolling.The reason of hedging to roll over is that deadline demand of hedging exceeds the longest maturity of the related futures contracts or long-term contracts are lack of liquidity. Since the establishment of New China, the development of China’s futures market has only20years and the development of the futures market is relatively young to more mature overseas futures markets, one of the main performance is the lack of varieties with a longer maturity period.Furtherly, in the present futures of shorter maturities, the ones of relative long maturity period are short of liquidity, which highlights the practical significance and necessity of study on the rollover hedging in our country.This article hopes throgh research on rollover hedging,we can identify the risk factors of rollover hedging, develop appropriate hedging strategies,compare the relative merits of the various strategies, and explore the extension matter of rollover timing and contract selecttion. The main structure of this paper is as follows:Chapter I:Introduction Section.This chapter describes the background, the significance of the topic, research methods and research ideas of the rollover hedging strategy.Chapter Ⅱ:Literature Review Section.This chapter describes some of the theories associated with this article, including the theory of the pricing of futures prices, hedging theory, illustrates the derivation of the optimal hedge ratio from hedging objective function, the estimation methods of the optimal hedge ratio, the effect evaluation of hegdes,and concludes the research on rollover hedging at home and abroad.Chapter Ⅲ:Rollover Hedging Risk Analysis Section.This chapter decomposes the expression of the hedging portfolio returns of a single period hedging and the rollover hedging.thus analyzes it with costs theory, through normative analysis,we can draw rollover hedging risk factors:spotprice, interest rates.storage costs and convenience yields. For rollover hedging risk characteristics, combined with different ideas of risk hedging, four rollover hedging strategies are proposed, including simple stack-and-roll hedge, MV stack-and-roll hedge, descending strip-and-roll hedge. unchanged strip-and-roll hedge.Chapter Ⅳ:Empirical Analysis of the Rollover Hedging Strategy Section. This chapter builds models of the four rollover hedging strategies, and under the variance minimization framework,this chapter proposes three best hedge ratio estimation methods myopic strategy, backward recursive method and overall planning strategy. In addition to the simple stack-and-rolling hedge strategy, the other three rollover hedging strategies’best hedge ratios are then estimated using the three estimation methods. Finally,we make an empirical analysis.Chapter Ⅴ:Hedging Timing and Contracts Selection Section.This chapter studies a more detailed question of rollover hedging:choose the timing and selection of contracts.Starting from the analysis of the characteristics of the volatility of the futures spreads, in the combination form of "expectations+standard deviation",we determine the normal fluctuation range of futures spreads.when futures spreads exceed the normal fluctuation range,we roll the future contrcts actively;Furtherly,we use Shanghai copper futures data for samples empirical analysis; Finally,this chapter uses the relative ranking of the futures spreads as the basis of selecting contracts, and make an empirical analysis with the copper data samples to verify the effectiveness of the strategies.Chapter VI:Summary and Outlook Section.This chapter summarizes the research of this article, points out the shortage of research in this article, and points out the direction of future research.The innovation of this paper is that:First, throuhg normative analysis, this article can draw rollover hedging risk factors:spotprice, interest rates,storage costs and convenience yields; Second, this article makes an comprehensive comparative study of rollover hedging strategies and draws some meaningful conclusions;Third, this article explores the extension matter of rollover timing and contract selecttion and develops effective strategies.The shortage of this paper is that:First,in this article the use of econometric methods is single;Second, in the range of empirical objects,there is only single species;Third, the test of rollover hedging period is short just three months.