Abstract: The Evaluation of Optimal Hedging Ratios are the core question in hedging. Among a great deal of methods,ECM-GARCH model of Kroner and Sultan(1993) has the best hedging effect as a result of considering cointegration relationship and conditional heteroscedasticity. Combining the character of spot and future market in China,this paper develops a Modified ECM LARCH model based on the method of Kroner and Sultan(1993),and calculates the dynamic optimal hedging ratios of copper in China using Modified ECM-GA RC H mo del,BGARCH model and ECM-LARCH model of Kroner and Sultan(1993) respectively. Results indicate that the efficiency of hedging of Modified ECM-LARCH model is the best among the three models,the risk calculated by Modified ECM-LARCH model decreases 93.6% and 92% than BGARCH model and ECM-LARCH model of Kroner and Sultan(1993) respectively.

Key words: hedging ratios, BGARCH, ECM-GARCH, modified ECM-LARCH