Abstract: At present, Chinese security market is not mature and risk hedging tools are limited. Therefore, the use of one futures hedging on multiple assets is an important strategy in portfolio risk management. This paper first constructs a minimum CVaR\,(Conditional Value at Risk) hedging model based on linear programming and then applies the R-vine Pair Copula-GARCH model combined with Monte Carlo simulation to generate the joint distribution of returns and scenarios that fit the simulated distribution, which is the inputs to the minimum CVaR model to obtain the optimal hedging ratio. Empirical researches based on CSI 300 stock index futures and five stocks have shown that portfolios hedged by using the proposed model in this paper achieve better performance in both return and risk control when compared with the improved hedging model under normal distribution assumption.

Key words: Pair Copula, GARCH, CVaR, hedge ratio