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

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.