Research On Optimal Hedging Ratio Of Iron Ore Based On GARCH Model

In recent years,the price of iron ore has fluctuated widely,The importance of risk aversion of iron ore market participants has become increasingly prominent.The use of hedging is a useful way of avoiding the spread of risks,the company’s costs can be locked in during the economic boom,the company’s financing costs can be reduced when funds are scarce,and the use of hedging during periods of economic decline or market supply exceeds demand can help companies stabilize profits.On October 18,2013,China’s Dalian Commodity Exchange implemented iron ore futures,which created the basic conditions for iron ore market participants to carry out iron ore futures hedging.The traditional hedging ratio was 1:1,but its hedging effect is usually not very good.Therefore,how to establish the optimal hedging ratio of iron ore has become an important subject of the company’s hedging risk control.This article integrates the content and results of the global hedging model and theoretical analysis,explains the core interpretation of the hedging and basic characteristics of iron ore futures,and discusses the basis for the creation of each set of hedging models It discusses,selects empirical evidence and data analysis as the key content,regards iron ore futures and spot positions as investment portfolios,and conducts an empirical analysis of the hedging ratio of iron ore from the perspective of obtaining the lowest risk of portfolio benefits.The empirical study selects 522 groups of data from December 31,2017 to December 31,2019,including the daily quotation of Platts Iodex index of iron ore and the daily settlement price of the main futures contract as sample data.Based on their distribution characteristics,the GARCH model,the TGARCH model and the EGARCH model are respectively used on the premise that the data pass the ARCH test to estimate the hedging of iron ore At the same time,the hedging performance achieved by different models is compared through Ederington measure method.Through empirical research,it can be seen that,in the direction of trend convergence,there is a relatively high correlation between spot prices and iron ore futures prices.This means that,relying on futures trading,we can hedge spot risk positions.Furthermore,several specific models can help companies avoid risks to a certain extent,especially for iron ore hedging ratio.Standing in the direction of the relevant samples selected in this study,According to EGARCH model,the hedging performance is the best,with a ratio value of 0.7645.Therefore,in the time interval of the sample,the EGARCH model is the model most in line with the estimation of the iron ore hedging ratio in my country,and the estimated hedging ratio is also the best hedging ratio.In certain respects It brings more effective means and references for investors to implement iron ore hedging decisions.