Research on the Hedge Ratio of China's Crude Oil Futures — Based on DCC-GARCH Model

Journal: Modern Economics & Management Forum DOI: 10.32629/memf.v2i3.390

Hao Du

Nanjing Audit University

Abstract

Crude oil plays an important role in economic development. This paper chooses China’s crude oil futures and crude oil actuals as the research objects, and builds the DCC-GARCH model to study the hedge ratio under the risk minimization standard. The hedge ratios obtained from the DCC-GARCH model will be compared with those obtained from OLS, B-VAR and VECM models. The empirical results prove that: China’s crude oil futures and actuals have a significant reverse “leverage effect”; China’s crude oil futures have a variance reduction of more than 70% under all models; the DCC-GARCH model achieves the best hedging performance in the four models.

Keywords

crude oil futures, DCC-GARCH, hedge ratio

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