Integrated Risk Measurement Of Commercial Bank

Before the 1980s, the risk management of commercial banks is major in single local-based management approach. Since 1990s, with the pace of economic globalization and finanacial liberalization accelerating, the risk management of commercial banks faced tow real scenarios:one is that the financial industry is developing towards the trend of conglomeration and internationalization, and the other is that the use of information technology is becoming more and more widely. All of this make the risk characteristic of commercial banks from simplification to diversification and complication. Basel II also explicitly points out that the previous pure credit risk management mode deverts to the enterprise-wide risk management of credit risk, market risk and operational risk in the risk management of commercial banks, and shows the correlation of the risks. The diversification and dependency of risks put higher requirements forwards to the risk management of commercial banks. On the other hand, mixed operation is the development trend of 21 century, and China has also emerged financial conglomerates. An important feature of banking sector under mixed operation is the new types and dependency of risks due to the combination of different financial institutions, so the single risk management mode could not cope with the risks faced by the company. Integrated risk management has been paid to more and more attention, and become the development trend of the risk management of modern commercial banks.In the first place, this paper resumptively analyzed the basic connotation and features of credit risk, market risk and operational risk of commercial banks, as well as their respective measurement methods and models. And then the integrated risk measurement of commercial banks has been quantitatively studied following by the top-down approach and bottom-up approach of integrated risk assessment methodology.Copula function is an effective method for measuring the integrated risk, which can describe the dependency structures of different types of risk, also separately study their marginal distributions and dependency structures, as well the chioce of marginal distribution is not restained. This article commits Copula theory and CVaR technology to integration measure of credit risk and market risk in commercial banks. The five two-dimensional Copula functions in Elliptical Copula family and Archimedean Copula fanmily have been used to describe the dependency structures of risks in different types, as to build its joint distribution function. Then Monte Carlo simulation is used to estimate CVaR of integrated risk under different dependency structure. By the conclusion, it can be kown that the simple additive method for different risk values often used by the financial practitioners and regulators will over-estimate the overall risk value, which resulting in many problems brought by inappropriate provision for regulatory capital. As to be more precisely description of the dependency structures of risk, This paper builds mix Copula model based on single Copula functions, and constructs the model of mix-Copula-based VaR and CVaR, to measure the integrated risk. Empirical study has shown that mix Copula is the optimal model describing the structure denpendency between the two different types of risk, and the estimators of VaR and CVaR is the most effective ones. We can know that the mix Copula can reflect the structure dependency between the two different types of risk much more comprehensive than single Copula.Based on bottom-up approach, this article proposes the general approach and general framework of integrated risk modeling. In the bottom-up approach, there is a modeling method for integrated risk, that is making one risk factor into another risk factor model. Given the structure method and reduced-form method of credit risk model as the base models, repectively introducing the stochastic market risk factor into the two base models to build the model for integrated risk measurement. Thus these two derivative models are no longer pure credit risk model, but the model for integrated risk measurement, which could consider the market risk factors. Through this type of model, the output variable will be the integration value of credit risk and market risk..This paper analyzes the risk for financial conglomerates major in banking, and dissertates the venture capital management issue and ecnomic capital allocation for financial conglomerates. The overall risk of financial conglomerates is divided into three levels, discussing the characteristics of risk factors and the diversification for the three different successive levels.These research results will widen ideas and patterns of the risk management for Chinese commercial banks, and deeped the depth of the risk research. And this paper provides a number of important theoretical foundation and useful design concept for the risk managers carrying out practical work, and has important practical significance.