Research On The Optimal Hedge Ratio Of Crude Oil Futures

China's crude oil futures successfully launched at Shanghai International Energy Exchange?INE?on March 26^th,2018.It's had been viewed as a milestone for China commodity markets since no such future had been available for foreign institutes before.China's crude oil daily trade amount has rushed into the top 3 of the global market in less than a year.At present,there have been large energy firms take the INE crude oil futures as their guide price to exchange and we are assuming more to come.Anyone dealing with crude oil will be exposed to its price change risk due to uncertain factors like the unstable global macroeconomic status,trade conflicts etc.Thus,it is of great importance for the related to do the risk management job.This paper focuses on risk management of the participants and take an in-depth study into the hedging ratio based on the minimal variance method.Meanwhile,same method is applied to the Brent crude oil market to make a comparison with INE.Crude oil future contract price series are taken from INE and The International Petroleum Exchange?ICE?along with the spot market price series from corresponding markets.Copula methods are used instead of common methods to find the nonlinear correlation between the future and spot market.First of all,this paper fits marginal distribution for each Copula models.Then using the marginal distribution to fit appropriate Copula models.The results show that it appears there is no significant ARCH effect in INE markets,so an ARMA model is applied to fit both future and spot price series.In contrast,the ICE market shows great ARCH effect which needed to be fitted with GARCH models.Then using the marginal distribution to fit appropriate Copula models.Finally,hedging ratio is calculated with the help of the above models and hedging effectiveness is given.According to the results,the optimal hedging ratio at INE markets is given by traditional model and Brent crude oil is given by Frank Copula-GARCH-t model.