Research on Real Futures Dynamic Hedging Based on S-GARCH Model

The key point of hedging is determination of hedge ratio. The existing hedging researches emphasize particularly on static hedging, which can´t effectively reflect the time-varying characteristic of market risk, thus cause hedge effect distortion. The main innovation is establishing a much simpler S-GARCH model to estimate the dynamic hedge ratio. There are three idiographic characteristics. Firstly it dynamically estimates the futures and spot combination´s volatility, and primely portrays the time-varying variance effect of the futures and spot´s price volatility, and enhances the hedge ratio´s precision. Secondary the proposed S-GARCH model uses GARCH (1,1) model to estimate the variance-covariance matrix, so that it is considerably easier to estimate than existing multivariate GARCH models and does not suffer from the computationally burdensome problem. Thirdly the demonstration indicated that, this model´s validity was higher than the popular existing models.