Abstract: Through decomposing the total risk into the system risk and nonsystematic risk, a new stock index futures hedge model is proposed and the best hedge ratio is resolved. According to the hedge purpose, endowing the two types of risk with different weights can improve the portfolio performance. The result shows that the stock index futures strategy based on the risk decomposition have three advantages. Firstly, the model can effectively reflect investors’ preference to different risk types. Secondly, the model has a good summary ability. The MV model, H-D model and HKL model are all its special forms. Thirdly, by risk-decomposing and parameter-controlling, the model can track the market risk factor more effectively, and then help investors more easily realize their individual investment strategy, such as the alpha strategy.

Key words: stock index futures, hedging strategy, risk decomposition, return-variance utility