| Market risk is the risk that because the change of market price financial assets including interest rate, exchange rate, stock price and goods may lead an undesirable fluctuation, commercial banks have always faced the risk of losses in on and off-balance-sheet positions arising from this type of market movements. This kind of risk must not be easily considered as a summation of all market risk factors that commercial bank faces. Because it is not a simple independence relation, but is a complicated joint-action linkage that exist between all these factors, including interest rate, exchange rate, asset prices and many other macro-economy variables. Under this consideration, such linkage must be taken into account in order to calculate the real VaR level of commercial bank. In this paper, the author makes a deep research on the measurement systems of commercial bank's market risks in different countries, from the aspects of both the real diagnosis analysis and the standard analysis. The "Amendment to the Capital Accord to Incorporate Market Risks (1996)" is the Basle Committee's pronouncement on capital charges for market risk. It sets forth two approaches for calculating the capital charge to cover market risks:the standardized approach and the internal models approach. The former adopts a so-called building block approach for interest rate related and equity instruments which differentiates capital requirements (charges) for specific risk from those for general market risk. The latter prefer to use proprietary in-house models as an alternative approach to the standardized method for calculating market risk, the capital charge is the higher of previous day's VaR and the verage of the daily VAR of the preceding 60 business days. More strict regulation requirements clearly reveal the urgency for China's commercial bank to learn form their foreign peers on how to construct a measurement system of commercial bank's market risks, so as to meet the new requirement of globalization features. Based on the research of the measurement systems of commercial bank's market risks in different countries, the author gives a series of constructive suggestions on how to measure commercial bank's market risks in China accurately through the systemic calculation of VaR method.Through the description of theories and models on the measurement of commercial bank's market risks, and considering the features of market risks to China's commercial banks, the author reaches the belowing conclusions: 1. Interest rate risk, exchange rate risk, asset price risk are three important risk factors to commercial banks. According to the standardized approach, the commercial bank's real VaR level must be computed on the sum of risk exposure interest rate risk exposure and exchange rate risk exposure. Under the circumstance of Globalization, the VaR model is a major method of the risk measurement of commercial bank at present, which can measure the over-all risk of financial investment portfolio.2. Howerver, the market price of risk is conceptually one of the most critical artifacts of modern finance, since it provides the between equilibrium and arbitrage models of derivatives pricing. In this sense, the joint-action linkage imposes higher requirements on commercial banks'market risk management. How to allocate caipital applying to the joint-action linkage of each risk factor, so as to maximize the investment return under the circumstance of principal safety, is an essential problem to commercial banks.3. As example, we research on the market management in Deusech bank. For the sake of imprudental operation, commercial banks have to place some assets to compensate the market risk. If we have mastered the correlation rules of the market risk, we could use our risky assets best.4. From the aspect of interest rate risk, the declaration of macro economic policy of our government, we can call it the policy risk, is the main factor that lead to the interest rate risk of commercial bank in China. However, there are also some problems that are risks from modeling and over-depending the historical data in the process of using VaR model. To avoid these limits, many other methods such as historic-simulation method, Monte Carlo simulation and stress testing method are also used as an implement to the VaR model.From the aspect of exchange rate risk, since China's exchange rate system of 1994, China's commercial banks attached increasingly more importance on exchange rate risk mangement. In order to hedge exposures to currencies, commercial banks have used many traditional hedging models and techniques.
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