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Cross-species Arbitrage Risk Measure Based on VaR Method

Author: XieYuXuan
Tutor: WangJinZhong
School: Southwestern University of Finance and Economics
Course: Financial Engineering
Keywords: Cross - species spread arbitrage Risk Measurement APARCH model
CLC: F724.5
Type: Master's thesis
Year: 2010
Downloads: 149
Quote: 0
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Abstract


The development of China's futures market from start-ups to straighten out, to today's norms meantime has gone through 10 years of wind and rain away. In recent years, China's futures market transactions show a resumption of growth and with a new high, China's futures market has ushered in the great development opportunities in the fast-growing being. Futures trading only need a small amount of money can do large transactions, the futures market is a very strong leverage effect \a great risk of the market. With the continuous development of the futures market, more and more companies and investors to participate in the futures market transactions, although the various types of participants for different purposes but faced huge risk in the futures market must pay serious attention. Investors during the spread arbitrage activities, due to arbitrage portfolio volatility is low, the risk is limited advantages tend to ignore the market risk spread arbitrage. In fact, through the listing of margin trading in the futures market, leverage risk to expand, even low volatility arbitrage portfolio may give investors a huge loss. We should not only be the type of risk arbitrage trading, sources of risk have a full understanding and qualitative understanding, but also should make use of some quantitative tools to quantify the risk, relying on quantitative means to adjust their trading strategies in order to achieve optimal risks and benefits combination. The futures market cross-species arbitrage connotation mechanism futures prices to maintain a certain price difference than the column, the price difference between the commodity over a certain range indicates that the price of a commodity is relatively overvalued or relatively undervalued arbitrage opportunities exist. Revenue derived from the commodity arbitrage spreads or ratio between the price back to normal, if the spread does not converge as expected but extended then the arbitrage portfolio losses will occur, so that risk arbitrage portfolio gains can spread this indicator be characterized, the volatility of the spread is the arbitrage portfolio returns fluctuation. Spread cross-species arbitrage trading indirectly portrayed an important indicator of the arbitrage trading income, this article attempts to spread in different commodities as the risk of cross-species spread arbitrage metrics VaR risk measurement system integrated into the indicators arbitrage spreads combination effective measure market risk, the measure spread this indicator of the risk measure is more direct and easier observation. The article will first introduce the the cross species spread arbitrage, the risk of cross-species arbitrage type as well as the main sources of risk, cross-species arbitrage connotation mechanism, the spread is an effective portrayed arbitrage portfolio risk and return indicators. Then introduced the main methods of risk measurement and modeling references spread VaR risk measure. Finally, through sequence analysis of the yield spread of soybean and soybean meal can be found that the yield of soybeans and soybean meal futures contracts spread sequence is not a normal distribution but has spikes, thick tail characteristics, and the presence of significant GARCH effect. The GARCH and ARARCH of model species VaR calculation results inspection, APARCH-GED model in three confidence levels passed the examination, and the actual failure rate is close to the expected failure rate can be a good measure of cross-species arbitrage risk.

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CLC: > Economic > Trade and Economic > China's domestic trade and economic > Circulation of commodities > Futures Trading
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