Study on the optimal hedging ratio of Shanghai crude oil futures based on Copula models

Xiaofei Wu, Hailong Miao, Shuzhen Zhu and Xin Li

Asia-Pacific Journal of Accounting & Economics, 2022, vol. 29, issue 6, 1657-1670

Abstract: This paper focuses on the risk management of the participants and takes an in-depth study into the hedging ratio based on the minimum variance method. Crude oil futures contract price series are taken from INE and SHENGLI crude oil markets. Copula methods are used instead of common methods to find the nonlinear correlation between the futures and spot markets. Especially, the hedging ratio and hedging effectiveness are calculated by the minimum variance method and three copula models. The study found that the hedging ratio derived from the Frank Copula model is more suitable for the Shanghai crude oil futures market.

Date: 2022
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DOI: 10.1080/16081625.2020.1754251

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Asia-Pacific Journal of Accounting & Economics is currently edited by Yin-Wong Cheung, Hong Hwang, Jeong-Bon Kim, Shu-Hsing Li and Suresh Radhakrishnan

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