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The fuel economy and emission of the hybrid vehicle depend largely on the selected engine. And the dedicated hybrid engine (DHE) can be controlled to operate in the optimal operating range because DHE can be decoupled from the vehicle transmission system. The main purpose of this paper is to improve the thermal efficiency of the diesel engine under common operating conditions combined with high compression ratio (CR) and early or late intake valve closing (IVC) angle. According to the vehicle road spectrum data, the optimal operating range of the engine is determined to be 1200-1400 rpm and 70%-90% load. Then CR and IVC angle are optimized by using the calibrated one-dimensional thermodynamic model of the engine under limited peak combustion pressure (Pmax). The results show that the adjustment of IVC angle and CR can control the thermal state at the end of compression stroke. The combination of CR and IVC angle can achieve the optimal fuel consumption improvement.