Empirical Study On Optimal Hedge Ratio Bond Futures

China Financial Futures Exchange launched a five-year and ten-year Treasury bond futures futures. Five-year and ten-year Treasury bond futures futures launched, China’s capital market is a major milestone event. Treasury bond futures spot market with increased liquidity is conducive institutional investors to avoid interest rate risk, promote institutional investors to develop and grow, to improve the effectiveness of asset allocation investors, in favor of market-oriented interest rate reform process, it is conducive to the formation of an effective interest rate term structure and other functions. Treasury cash market of recent years has made great progress, distribution and trading volume has made great progress, effective treasury bond futures spot market for the development of the market has created favorable conditions. Effective use of government bond futures to hedge interest rate risk, in the context of the interest rate market conditions is particularly important, an effective hedge interest rate risk or not accurately determine the optimal hedging ratio is particularly critical.Due to various subjective and objective conditions, in theory, the use of bond futures to hedge interest rate risk is completely impossible, namely bond futures hedging effect subject to certain restrictions, investors have to face the problem of imperfect hedging. Since the yield risk, value risk trade-offs, there are many factors affecting the cost of capital risk, basis risk, hedging ratios, the interest rate term structure, bond futures to hedge the effect may not be satisfactory. In this paper, "Standing on the shoulders of giants."Research by the five-year bond futures for optimal hedge ratio, hedge interest rate risks provide a useful exploration.Treasury futures play an important role in asset allocation and risk management. Treasury futures trading property itself such that it is inherent in the debt stock in many respects highly correlated price, index, combined with the highly leveraged nature of the bond futures can achieve cost-effective hedging. Treasury futures for some time how to play the extent of their hedging function, many features bond futures transaction, subject to the term structure of interest rates and limited debt futures, bond futures hedge ratios and hedging effectiveness on how to be empirical. Empirical models in the literature regarding hedge ratio is too many, but mainly from the OLS model, VAR model, VEC model, GARCH models perspective. The main point of its theoretical model based on long-term value of the model and the model.By using real transaction data for research on related issues. As used herein, the classic hedge model for real 5-year bond futures and the corresponding spot bonds of all maturities data (1--3 years 3--5 years 5--7 years,7-10 years 10 years bonds Full price index of indices, for comparison we also selected the 5-year Treasury-indexed), selected a specific sample interval, the sample interval data to conduct empirical research to determine the five-year period, respectively, for each term Treasury bond futures spot The optimal hedge ratio. We analyze the optimal hedging ratio obtained for each model corresponding to the time limit, then seeking the hedging efficiency within the sample data, and the data-sample backtesting test. Classic hedging model used hereare OLS model, VAR model, VEC model, GARCH model. Sample interval of this article is "1 May 2014" to "27 August 2015" to "1 May 2014" to "31 April 2015" as the first paragraph of samples, mainly for model parameter estimation and hypothesis testing, the second paragraph of the remaining samples are mainly used for back-tested sample test.Results of this study showed that:the price does not meet the normal sequence, and its logarithmic form can effectively solve the problem of heteroscedasticity, the price of a first-order difference sequence number sequence is a smooth sequence. Different models of its estimated hedging ratio or less, general OLS model to estimate the hedging ratio slightly larger. With the expansion of maturity, with the Treasury bond futures to hedge cash required for optimal hedge ratio is widening. Usually within the sample data, OLS model is the best hedging; for hedging effect-sample data VAR model is the best model of hedging effect four or less. Maturity Treasuries spot farther away from the five-year hedging the worse, on the contrary, a good five years away from maturity closer hedging effect. With increasing maturity, the optimal hedging ratio is also increasing. Overall, the 5-year bond futures to hedge the interest rate risk for the long-term effect of good, but for 1-interest rate risk hedging ineffective three-year period.According to the conclusions of this paper, we hope to launch the regulatory authorities in the short-term interest rate derivative products when appropriate, to respond to short-term investors need to hedge interest rate risk, the existing five-year, 10-year bond futures to hedge the interest rate risk for short-term effect is not good; and the regulatory authorities should promote the "interest rate market" reform and improve the yield curve, particularly the need to improve the formation mechanism yields the short end and the long end.