Study On Financial Risk Measurement And Conditional Value-at-Risk

Financial risks management is a hot topic in financial instituations, academia, and financial supervisors for recent years. Risks measurement is the core of effective risks management. Therefore, it is significantly important to study risks measurement in the background of financial globalization. Reasonable risks measurment is fundamental for China's risk management study, as well as China's finance development and finalcial markets construction.In this paper, we discuss Conditional Value at Risk, i.e. CVaR. It grows from Value at Risk. However, CVaR is a more reasonable measurement than VaR. And CVaR develops its theory and expands its application as an independent measurement. As a modern risks measurement, CVaR sets its base on statistics, mathematical algorithms, combined with engineering science and computer science. In this paper, we will use quantitative analysis more than qualitative analysis.Firstly, we give some introduction of risks and financial risks, which is the primary knowledge for risks measurement. We also write about present financial risks and risks management both in China and worldwide. In the second part, we introduce Markowitz Investment Theory, E-V Model, E-SV Model and some other important risks measurement. These theories are important parts in modern risks management theories. They are also basis of VaR and CVaR. Then, we discuss CVaR. Before we do that, we give an introduction of VaR, including its concept, model, algorithms and its application in portfolio optimizaion. When we come to CVaR, we discuss its concept, its idea, its model and its algorithms in normal distribution for linear portfolio. According to the algorithm given in this paper, we give a case study on CVaR portfolio optimization. We seldom find CVaR case study in China's papers. This paper gives a good example. Then, we look into the prospect of risks measurement and discuss some other supplements for VaR. Finally, we think we should step further in China's risks measument study. We give some ideas and suggestions on how to expand CVaR and VaR applications in China.