VaR Measurement On The Market Risk Of China's Convertible Bonds Based On MC-GARCH

Since 1992 when the first convertible bond was launched in China, China's convertible bond market has experienced rapid development, and it has taken off greatly in 2010. In the current context of growing financial market volatility, it has become a significant issue to measure and supervise the market risk of China's convertible bond market. Taking the measurement of China's convertible bond market risk as the core, the paper determes efficient measurement method and models and studies empirically the use of VaR in the China's convertible bond market based on the composite index and data of individual convertible bond, through which we can try to explore the features of China's convertible bond market risk and then offer advice and suggestion to the efficient supervision of China's convertible bond market risk.The paper uses VaR based on Monte Carlo simulation and GARCH family models to measure the market risk of China's convertible bond, trying to explore the appropriate model based on mathematical model and econometrical methods in order to achieve the real time monitoring to the market risk of China's overall and individual convertible bond. The paper is divided into five chapters. The first chapter states the objective and methods of the paper; the second chapter introduces the connotation of convertible bonds and its foreign and domestic development, and analyzes the risk and presents the significance of measuing China's convertible bond market risk. Then based on the analysis and evaluation of market risk measurement methods, VaR is selected as the method of measuring China's convertible bond market risk, and Monte Carlo is selected as the calculating method. Furthermore, the paper introduces GARCH family models based on different distribution assumption to depict the volatility; the third chapter chooses 1805 data of closing price of the composite index to calculate VaR using Monte Carlo simulation and GARCH family models, and makes back test which indicates Monte Carlo simulation based on GARCH family models is evidently superior compared with that based on standard deviation and EGARCH model under GED distribution is the best model among the GARCH family models; in the fourth chapter, Chengxing convertible bond and Tanggang convertible bond are selected to test the performance of MC-GED-EGARCH model in China's individual convertible bond market risk and the result confirms the feasibility of the model. Therefore, the model can be used to measure the overall and individual market risk of China's convertible bond market risk; Ultimately, further analysis of using VaR in China's convertible bond market is presented in the fifth chapter, including making stressing test as the supplementary to make up for the deficiency of VaR in respect to depicting the risk under abnormal conditions and offering suggestion with respect to the application of VaR in China's convertible bond market.