VaR Based On Conditional Revenue Ratio

Since the 1990s last century, the security market of our country has developed violently and entered a brand-new developing stage. It means that the market risk that financial institutions face, such as securities broker company of our country, etc. will be prominent day by day, and the problem of management of the risk seems more important and urgent. All these have offered the wide development space for the application of VaR—the risk management tool.The traditional VaR model has certain defects in the security market because it generally assumes the price of financial assets has nothing to do with its revenue ratio. Therefore we propose to utilize the theory of the condition distribution on the base of the union statistical distribution of stock price and its revenue ratio. We would study the statistical distribution characteristic of conditional revenue ratio given the stock price so that improve the method of VaR and the practical efficiency of its application. The method of VaR studied in this paper is also called conditional VaR, which bases on condition revenue ratio subjected to level of the stock price.First, we research the correlation between the stock price and its revenue ratio in the paper, and the result indicates it is a kind of weak negative relevant relation. Secondly we assume that the union distribution of logarithm of the stock price and its revenue ratio obeys two-dimensional normal distribution, and then confirm the statistical distribution characteristic of condition revenue ratio from it. If conditional revenue ratio does not have clear distribution form, we should use the historical data of stock price to construct the empirical distribution function of stock price and its revenue ratio. Finally we would calculate VaR under the condition revenue ratio.The empirical research indicates that the value of VaR varies as the stock price in different level, and the absolute value of VaR rises with stock price rising. It proves that the higher the stock price is, the greater the risk is; the lower the stock price is, the less the risk is. The research conclusions not only suit for stock market but also have certain reference value to bond, fund market with applying for VaR model.