Empirical Evaluation of the Hedge Risk of Stock Index Futures Based on Hushen 300 Simulation

Hedging with stock index futures brings the hedge risk due to the existence of the basis. In order to measure the hedge risk dynamically, the hedge risk of stock index futures is defined as the VaR (Value at Risk) of the hedge return and measured by the variance-covariance method based on time series analysis method. The Normal distribution, Student-t distribution and GED (Generalize Error Distribution) are utilized to show the fat-tail and heteroscedasticity features of the hedge return. The empirical VaR evaluation of the hedge risk of hedging Hushen 300 Index with Hushen 300 Simulating Stock Index Future shows that the VaR model based on t-GARCH(1,1) gives the most accurate evaluation. Thus the problem how to measure the hedge risk dynamically and accurately is solved.