Risk Measurement Of Interest Rate Of China's Commercial Banks And Empirical Analysis

As the hub of the market economy, commercial banks play the role of distributing benefits and managing risk. To commit and manage risk which is the fundamental value of the commercial banks is also the foundation profits of commercial banks.Along with the liberalization of interest rate of our country, the risk of interest rate will becomes one of the major risks of financial market. But for the long time control of interest rate, China's commercial banks are not sensitive to interest rate risk and have no sufficient awareness of interest rate risk. And the management of interest rate risk also is backward. Therefore how to prevent and reduce and manage interest rate risk become major issues of China's commercial banks to be addressed.Before the interest rate risk is managed, we should measure it firstly which is the premise and foundation of management. In fact, the management of interest rate risk is a process which includes identifying interest rate risk, measuring interest rate risk, controlling interest rate risk and testing interest rate risk these four stages. During these four stages measuring interest rate risk is the key point and the basis of interest rate risk management. So the accurately measurement of commercial banks'interest rate risk combining financial environment in our country and the outcomes of interest rate market has important theoretical and practical significance to resolve the exposure to interest rate risk.This paper describes the theory of measuring interest rate risk along with the main line of development process of interest rate risk measurement theory. On this basis, the interest rate risk measurement method-VaR(Value at Risk) and CvaR is described emphatically. Then we select a series of daily weighted average interest rate data of CHIBOR7 as an example and make a empirical research. The structure of full paper is as follows:The first chapter is the introduction of this paper, describing the background, significance, research status at home and abroad, and the structure of this paper. The second chapter introduces the concepts of interest rate risk firstly and then analyzes the causes and effects of interest rate risk. After analysis of the liberalization of interest rate, describes the identification of the interest rate risk and the management mechanism of interest rate risk of commercial banks. And then we point, during the liberalization of interest rate, China's commercial banks should use the advanced theory to measure the bank's interest rate risk, and to strengthen the interest rate risk management. The third chapter is the theoretical core of this paper. This chapter described three different major measurement methods of interest rate risk. First section describes the first applied method:the interest rate sensitivity Gap model. SectionⅡdescribes the later development of measurement:the Duration model, SectionⅢis the focus of this chapter. This section pays attention to the latest development of risk measurement method-VaR model and its supplementary CvaR. And the basic principles of the model, the relevant parameters, the calculation and the supplementary are all described. The forth chapter is the practical and innovate core of the full paper. The first section introduces the status of interest rate risk of China's commercial banks. The second section begins the practical study. This section tells the collection of the data, the basic data tests and the statistical characteristics of the dada. SectionⅢuses a variety of models to fit the selected samples, and calculates the corresponding values of VaR and CVaR, and finally test the model posterior. SectionⅣexplains the results of the model and gives two reliable models to calculate the value of VaR. At last pointes out some shortcomings of this paper and the future research directions. The fifth chapter is a summary of full text and a expectation of model application. This chapter reviews the overall structure and basic content of the paper, and points out the direction and applications of future research of VaR and CvaR according to our current state of financial markets development.The innovation of this paper is trying bring the method of using a GARCH model which its residuals obey the normal distribution to calculate CVaR model to measure the interest rate risk of China's commercial banks. The empirical results show that the GARCH model which its residuals obey t-distribution can fit the daily weighted average of interest rate data of CHIBOR7 perfectly. So the calculated VaR wins the accurate test. Therefore this model could be a reliable model to study the interest rate risk of China's commercial banks. The inadequacy of this study is that the study select only one sample, however the actual banking operations are usually composed by a large number of assets. With the rapid development of computer technology and the increasing amount of information we can do more actual verification for banks. In addition, we can use EGARCH, TARCH, PARCH model do further research.