A Research On Risk Of Financial Innovation

Financial innovation is a creative process of new and high efficiency capital operation system by financial authorities or organizations. To improve liquidity, security and gain ability of assets, it changes the basic element combination in financial system by adopting new idea, management and technology, and it innovates new tool, service, market and system. During financial innovation process, the risk of financial innovation is a possibility which innovators' measures can't bring into effect rightly, or innovative incomes suffer loss. The risk of financial innovation includes risk during design and executive process. It is a representation of risk of financial.By employing macroeconomics theory, this paper analyzes the cause of risk on financial innovation. On the basic of game theory and probability theory, this paper sets up game models and analyzes VaR models, and proposes defensive system on risk of financial innovation. Then, taking American investment bank for example, this paper discusses the effective supervision on risk of financial innovation. Employing qualitative and quantitative, this paper analyzes the risk of financial innovation and its supervision from macroscopic angle. It tries to provide supervision reference on risk of financial innovation which can suit our country. On the whole, this paper includes 4 parts.The first part is a theory on risk of financial innovation. Firstly, this part defines financial innovation and reviews the development of financial innovation. Secondly, this part analyzes and classes the risk of financial innovation. Thirdly, this part analyzes the cause of risk on financial innovation from inflation, stability of financial system and validity of financial supervision.The second part is model analysis on risk of financial innovation. Firstly, this part sets up game models which are supervisor-innovator game model and innovators option-game model, and makes equilibrium analysis. Secondly, this part introduces VaR models on risk of financial innovation, including historical data simulation model, index shifting additive average model, mixed normal distribution model, ARCH model and Monte Carlo simulation model. Then, taking credit risk for example, this part demonstrates how to apply VaR model.The third part is the defense on the risk of financial innovation. Firstly, this part sets up the defensive system on risk of financial innovation, and analyzes 4 method defending risk which are risk obviation, risk diversion, risk apportion and transfer, and beforehand control management. Secondly, this part proposes principles on defending risk of financial innovation. Thirdly, this part suggests tactics on risk of financial innovation.The fourth part is a empiric analysis. This part introduces the risk control mechanism of American investment bank, then suggests supervisory mechanism of risk of financial innovation in our country.