Research on the Hedging of CSI300 Stock Index Future Based on VaR and CVaR Model

Abstract

Abstract. Hedging function is one of the most significant functions of stock index futures, and it received extensive public attention. This article set VaR and CVaR as hedging objective function of the hedging model in China and proposed the hedging effect measurement method based on VaR and CVaR. It also used the actual data of CSI300 stock index future to calculate its hedging effect. It is found from the result that the hedging model of stock index future based on VaR and CVaR can effectively reduce the risk of portfolio, and a relatively good accumulated income rate will be obtained. By comparison, the hedging model of stock index future based on CVaR will do better in controlling the risk of portfolio, while the hedging model of stock index future based on VaR will obtain a better accumulated income rate. Keywords. stock index future; hedging; VaR; CVaR PrefaceThe hedging function is a core function of futures market, and also the premises for the development of futures market. Hedging refers to the action that a trader purchases or sells the futures contract with the same type and quantity of traded goods but with different orientation, expecting to compensate for the actual price risk due to price change in the spot market by selling or purchasing the futures contract sometime. In April 16, 2010, China formally released CSI300 stock index future based on CSI300 index. Its release realized short sale in Chinese stock market. The investor may hold the spot stock while short selling the stock index future to achieve the hedging purpose and effectively avoid the systematic risk in the market.The current researches on the hedging rate of stock index future are mainly divided into two types: The first type of model research is based on the minimization of portfolio risk. This model gets the best hedging ratio of portfolio by minimizing the certain risk functions. These particular risk functions include variance [3] , downside risk [6,11] , MEG [2] , etc.. The second type of model research is based on the hedging ratio with greatest utility.This model gets the best hedging ratio [1,8] by maximizing the utility function [1,8] . The standard to measure the assets risk by fluctuation rate, namely the variance, is widely used in the risk measurement for assets, but this kind of method to measure the assets risk with symmetric profit and loss is contradictory to the feelings of investors for the risk. In the actual 7KLV LV DQ 2SHQ $FFHVV DUWLFOH GLVWULEXWHG XQGHU WKH WHUPV RI WKH &UHDWLYH &RPPRQV $WWULEXWLRQ /LFHQVH ZKLFK SHUPLWV XQUHVWULFWHG XVH GLVWULEXWLRQ DQG UHSURGXFWLRQ LQ DQ\ PHGLXP SURYLGHG WKH RULJLQDO ZRUN LV SURSHUO\ FLWHG