Research Of The Calculation Methods For The VaR Of Shanghai Composite Index

On the basis of the comparison and analysis of general VaR methods in the process of computing the VaR of Shanghai Composite Index, this paper seeks to create a model of more accuracy and practical guidance to the VaR measurement of Shanghai Complex Index. Quantification of index risk provides a helpful reference for investors in their investment operation.In the application of Fractal Distribution method to the VaR computation of Shanghai Composite Index, a simplified Fractal Distribution composed of Normal Distribution and Cauthy Distribution is derived to estimate Shanghai Composite Index. Due to short period of the development of Chinese securities market and lack of historical data, the application of Fractal Distribution needs further verification.According to the actual performance of the market and referring to some methods in Coherent Market Hypothesis, this paper establishes a computable nonlinear statistical method, Classified Market Model, to calculate the VaR of Shanghai Composite Index.In the judgement of market situation, investors generally divide the market into three kinds, i.e., rising market, dropping market and non-trend market. By means of analysis and classification of historical time series data of Shanghai Composite Index, this paper creates yield distributions that belong respectively to rising market, dropping market and non-trend market.It uses technically analytical methods to analyze the market situations of the periods when the calculation of VaR is required, and establishes the probability distributions in rising market, dropping market and non-trend market. Furthermore, it utilizes expectation method or combination distribution method to work out the VaR of Shanghai Composite Index.Through verification, analysis and comparison, we get to know that Classified Market Model makes a good estimation of the VaR of Shanghai Composite Index and fully satisfies the requirement of investment risk estimation. In addition, it has the capability to trace the change of actual profit and loss of Shanghai Composite Index, therefore it offers guidance to investors. As far as stock investors as concerned, this point is of very practical importance.