Managing Financial Market Risk With Value At Risk

This paper falls into 7 parts:1. The current situation of the global banks. This part briefly introduces the main tides that influence the global banks and every change that influences the features of the bank risk.2. Risk Management of the bank. This part mainly discusses the classification of risk in the bank's running and analyzes the process and character of risk management in detail. Briefly introduces the approach of traditional risk management-asset liability approach such as the current earning approach, the market value approach and the sensitivity analysis approach. Compared with the approach of traditional risk management, we point out that the cause VaR brought about and function of VaR.3. Briefly introducing VaR. The part introduces VaR on the whole and puts up the basic concept of VaR.4. The statistical basis of VaR. This part mainly discusses the statistical distribution of the price and the returns rate, Including random process and the returns rate model, GAUSSIAN process, measuring returns rate with discrete random process, white noise process, auto regression process, moving average process, auto regression moving average process, random walk, continuous random process, leptokurtic distribution, conditional mixed distribution, GARCH model and fractal distribution.5. The financial basis of VaR. The part mainly discusses the approach of pricing the financial assets. Firstly we discuss the relevant theory of bond. Secondly we discuss the two models of stock returns rate, CAPM and APT, and then we introduce how to calculate VaR of stock. Lastly we discuss two kinds of derivative instrument, futures and options.6. The calculating approach of VaR. This part mainly discusses two kinds of practical calculating approach of VaR, parameter approach and non-parameter approach. Then we apply VaR model to analyzing the stock market of Hong Kong.7. The limitation of VaR. This part mainly discusses the limitation of VaR in the market risk management of the bank and the key questions caused when we transfer the concept to the number.